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UNIVERSITY  OF  CALIFORNIA 
AT  LOS  ANGELES 


PREPARED  UNDER  THE  DIRECTION  OF 

FREDERICK  A.  CLEVELAND,  Ph.D. 


PUBLICATIONS  OF  THE 
INSTITUTE  FOR  GOVERNMENT  RESEARCH 


STUDIES  IN  ADMINISTRATION 

The  System  of  Financial  Administration  of  Great  Britain 

By  W.  F.  Willoughby.  W.  W.  Willoughby  and  S.  M.  Lindsay 

The  Budget 

By  Ren6  Stourm 

T.  Plazinski.  Translator.  W.  F.  McCaleb.  Editor 

The  Canadian  Budgetary  System 

By  H.  G.  Villard  and  W.  W.  Willoughby 

The  Problem  of  a  National  Budget 

By  W.  F.  Willoughby 

The  Movement  for  Budgetary  Reform  in  the  States 

By  W.  F.  Willoughby 

Teachers'  Pension  Systems  in  the  United  States 

By  Paul  Studensky  (In  press) 

The   System   of   Financial   Administration   of   the   United 
States  (In  preparation) 


PRINCIPLES  OF  ADMINISTRATION 

Principles  Governing  the  Retirement  of  Public  Employees 

By  Lewis  Meriam 

Principles  of  Government  Purchasing 

By  A.  G.  Thomas 


SERVICE  MONOGRAPHS  OF  THE  UNITED  STATES  GOVERN- 
MENT 

The  Reclamation  Service 

The  United  States  Geological  Survey  (In  press) 

D.  APPLETON  AND  COMPANY 
PUBLISHERS  NEW  YORK 


2I3E 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 


PRINCIPLES  OF  ADMINISTRATION 
THE  INSTITUTE  FOR  GOVERNMENT  RESEARCH 

PRINCIPLES  OF 
GOVERNMENT   PURCHASING 

BY 

ARTHUR  G.   THOMAS 


D^APPLETON  AND   COMPANY 

NEW  YORK  LONDON 

1919 


COPYEIGHT,  I9I9,  BY 

THE  INSTITUTE  FOR  GOVERNMENT  RESEARCH 


Printed  in  the  United  States  of  America 


THE  INSTITUTE  FOR  GOVERNMENT  RESEARCH 

Wasliington,  D.  C. 


The  Institute  for  Government  Research  is  an  association  of  citi- 
zens for  cooperating  with  public  officials  in  the  scientific  study  of 
government  with  a  view  to  promoting  efficiency  and  economy  in 
its  operations  and  advancing  the  science  of  administration.  It 
aims  to  bring  into  existence  such  information  and  materials  as  will 
aid  in  the  formation  of  public  opinion,  and  will  assist  officials,  par- 
ticularly those  of  the  national  government,  in  their  efforts  to  put  the 
public  administration  upon  a  more  efficient  basis. 

To  this  end,  it  seeks  by  the  thoroughgoing  study  and  examination 
of  the  best  administrative  practice,  public  and  private,  American 
and  foreign,  to  formulate  those  principles  which  lie  at  the  basis  of 
all  sound  administration,  and  to  determine  their  proper  adaptation 
to  the  specific  needs  of  our  public  administration. 

The  accomplishment  of  specific  reforms  the  Institute  recognizes 
to  be  the  task  of  those  who  are  charged  with  the  responsibility  of 
legislation  and  administration;  but  it  seeks  to  assist,  by  scientific 
study  and  research,  in  laying  a  solid  foundation  of  information  and 
experience  upon  which  such  reforms  may  be  successfully  built. 

While  some  of  the  Institute's  studies  find  application  only  in 
the  form  of  practical  cooperation  with  the  administrative  officers 
directly  concerned,  many  are  of  interest  to  other  administrators 
and  of  general  educational  value.  The  results  of  such  studies  the 
Institute  purposes  to  publish  in  such  form  as  will  insure  for  them 
the  widest  possible  utilization. 


Frank  J.  Goodnow, 

Chairman 


Edwin  A.  Alderman 
Robert  S.  Brookings 
James  F.  Curtis 
R.  Fulton  Cutting 
Raymond  B.  Fosdick 
Felix  Frankfurter 


Officers 
Robert  S.  Brookings, 

Vice-Chairman 

Frederick  Strauss, 


Charles  P.  Neill, 

Secretary- 


Treasurer 

Trustees 
Frank  J.  Goodnow 
Jerome  D.  Greene 
Arthur  T.  Hadley 
Cesar  Lombardi 
A.  Lawrence  Lowell 
Samuel  Mather 
Charles  P.  Neill 

Director 

W.  F  Willoughby 


Charles  D.  Norton 
Martin  A.  Ryerson 
Frederick  Strauss 
Theodore  N.  Vail 
Charles  R.  Van  Hise 
Robert  S.  Woodward 


IHufiiiJi 


PREFACE 

In  1 914  the  Rockefeller  Foundation  made  an  appropriation  to 
defray  the  expenses  of  the  prosecution  of  a  series  of  intensive 
studies  of  problems  of  public  administration.  As  was  stated  in  a 
note  to  the  volume  "The  System  of  Financial  Administration  of 
Great  Britain,"  published  by  the  Institute  for  Government  Re- 
search in  1917,  the  expenditure  of  this  fund  was  placed  in  the 
hands  of  a  special  committee  composed  of  Messrs.  Jerome  D. 
Greene,  Charles  D.  Norton,  Charles  P.  Neill,  Raymond  B.  Fos- 
dick,  and  William  F.  Willoughby.  This  committee  selected  Dr. 
Frederick  A.  Cleveland  to  have  immediate  charge  of  the  prepara- 
tion of  the  studies.  Upon  the  organization  of  the  Institute  for 
Government  Research,  the  Rockefeller  Foundation  decided  to 
offer  to  that  body  for  publication  by  it  the  results  of  most  of 
these  studies.  The  present  volume  constitutes  the  fourth  of  such 
studies  to  be  published  by  the  Institute,  the  three  already  pub- 
lished being  the  volume  just  mentioned  on  the  System  of  Financial 
Administration  of  Great  Britain,  and  the  volumes  "The  Budget," 
by  Rene  Stourm :  A  Translation ;  and  "Principles  Governing  the 
Retirement  of  Public  Employees,"  by  Lewis  Meriam. 

The  author  of  the  present  volume,  Mr.  A.  G.  Thomas,  is  be- 
lieved to  be  exceptionally  well  qualified  for  the  task  undertaken 
by  him  and  has  had  unusual  opportunities  for  acquainting  him- 
self with  not  only  fundamental  considerations  entering  into  the 
problem,  but  the  actual  methods  employed  by  a  large  number  of 
the  more  important  undertakings,  public  and  private,  in  meeting 
these  considerations.  As  a  member  of  the  staff  of  the  late  Presi- 
dent's Commission  on  Economy  and  Efficiency,  he  devoted  special 
attention  to  problems  of  purchasing  as  they  confronted  the  na- 
tional government.  Later,  as  a  member  of  the  staff  of  the 
Bureau  of  Municipal  Research  of  New  York,  he  cooperated  in 
the  devising  and  installing  of  a  central  purchasing  system  for  the 
city  of  New  York.  Upon  being  entrusted  with  the  preparation 
of  the  present  study  he  made  a  personal  study  of  the  purchasing 

ix 


PREFACE 

systems  of  thirty  or  more  large  corporations  and  ten  important 
municipalities  whose  purchasing  systems  were  believed  to  be  most 
worthy  of  examination.  It  is  upon  the  basis  of  this  experience 
and  special  study  that  the  present  volume  has  been  prepared.  The 
finishing  touches  were  put  upon  it  after  Mr.  Thomas  had  joined 
the  staff  of  the  Institute  for  Government  Research. 

W.  F.  WiLLOUGHBY. 


CONTENTS 

PART  I 
THE  BASIC  PROBLEMS  OF  GOVERNMENT  PURCHASING 

CHAPTER  PAGE 

I.     Introduction 3 

II.  The  Centralization  of  Purchasing  in  Governments  .        .       7 

Advantages  and  Disadvantages  of  Centralization  of  Pur- 
chasing     8 

Centralization  of  Purchasing  in  Business  Corporations      .  10 
Advantages  of  Centralization  of  Purchasing  in  Cities  .        .  21 
Centralization  of  Purchasing  Now  Found  in  City  Govern- 
ments         23 

Conclusion :  Proper  Form  and  Extent  of  Centralization  of 

Purchase  in  Cities 38 

III.  Legal  Restrictions  in  Government  Purchasing    ...      44 

Provisions   Requiring  Competition  and  Award  to  Lowest 

Bidder 45 

Provisions   Excluding   Public  Officers  from   Participation 

in  Government  Contracts S3 

Requirements  Designed  to  Ensure  Fidelity  and  Good  Faith 

of  Vendors 55 

Restrictions  Arising  Out  of  Availability  of  Appropriations  58 

Restrictions  Relating  to  Labor  Conditions      ....  58 

Summary :  Authority  Properly  Vested  in  Purchasing  Agent  59 

PART  II 

PURCHASING   METHODS 

IV.  The  Purchasing  Process  Outuned 69 

V.  Determining  Purchase  Requirements 76 

Determining  Kinds  of  Articles  Needed 77 

Determining  Total  Quantities  Needed 83 

Determining  Frequency  of   Need  and   Quantity  at  Each 

Delivery 86 

VI.  Determining  Current  Market  Conditions  and  Tendencies      99 

Sources  of  Supply 102 

Articles  in  the  Market  to  Meet  Each  Need    .       .        .       .103 

Current  Market   Prices 105 

Processes   of   Manufacture 109 

xi 


CCXNTENTS 

CHAPTER  PAGE 

VII.  Elements  Essential  to  Securing  the  Fullest  Competition  112 

Specifications  Sufficiently  Broad  to  Admit  of  Competition  114 
Completeness  of  Information  in  Invitation  for  Bids  .  .114 
Elimination  of  Speculative  Elements  in  Bidding  .        .        .115 

Trading  Reputation  of  the  Purchaser  Among  Vendors        .  118 

Elimination  of  Red  Tape 119 

Attractive  Quantities 121 

Attractive  Delivery  Conditions 121 

VIII.  The  Development  of  SpEancATioNS 123 

Verbal  Specifications  Versus  Specifications  by  Sample        .  126 

Contents  of  Specifications 133 

Standardization  and  the  Development  of  Specifications        .  133 
The  Purchasing  Agent  and  Standardization  of   Specifica- 
tions           138 

IX.  Inviting  Bids:  Special  Problems  in  Preparing  an  Invita- 

tion FOR  Bids 141 

Class  versus  Item  Bids 142 

Bids  in  the  Alternate 148 

Homogeneous  Invitations  for  Bids 150 

X.  Purchase  Agreements 152 

Advantages  and  Disadvantages  of  Definiteness  in  Purchase 

Agreements 153 

Contracts  Indefinite  in  One  or  More  Respects        .        .        .  159 

Purchase  Agreements  in  Government  Purchasing        .        .  163 

The  General  Supply  Committee  of  the  Federal  Government  167 

XI.  Giving  Publicity  to  Purchase  Requirements        .        .       .  172 

Formal  Advertisements .  174 

Bulletin  Board  Publicity 177 

Direct  Notification  to  Dealers 180 

Geographical  Extent  of  Competition 182 

XII.  Purchase  Negotiations  and  Aw^ards 185 

Publicity  of  Purchase  Negotiations 186 

Discretion  in  the  Making  of  Awards 188 

Formalities  in  Making  Awards  and  Executing  Contracts    .  189 

XIII.  Follow-Up 192 

Organization  for  Follow-Up 193 

Information  Needed  in  Follow-Up  Work      ....  I94 

Methods  of  Follow-Up I9S 

XIV.  Inspection I99 

Causes  of  Inefficient  Inspection  of  Government  Purchases  200 

Centralization  of  Deliveries 202 

Organization  of  Inspection  Service  .....  204 
Need  for  a  National  Service  in  Developing  Methods  of 

Inspection  and  Testing 206 

xii 


CONTENTS 

CHAPTER  PAGE 

XV.    Handung  Invoices  and  Paying  Bills 208 

Delivery  of  Invoices  with  Goods 208 

Requirement  of  Certifications  with  Invoice  ....  209 

Number  of  Copies  of  Invoice  Required 210 

Use  of  Purchaser's  Stationery  for  Invoices  ....  212 

Checking  Invoices 213 

Avoiding  Duplicate  Payment  of  Invoices      ....  216 

Prompt  Payment  of  Bills 218 

APPENDIX 

1.  Purchasing  System  of  the  General  Electric  Company     .       .  225 

2.  Purchasing  System  of  the  New  York  Central  Railroad,  East- 

ern Division 241 

3.  Continuing  Agreements  in  City  Purchasing       ....  255 


xiu 


PART  I 

THE  BASIC  PROBLEMS  OF 
GOVERNMENT  PURCHASING 


PRINCIPLES   OF    GOVERNMENT 
PURCHASING 

CHAPTER  I 
INTRODUCTION 

On  its  technical  side  the  problem  of  government  pur- 
chasing involves  the  same  essential  elements  as  does 
purchasing  for  a  private  business.  In  governments, 
as  in  private  business,  there  exists  the  necessity  for  ex- 
pert handling  of  all  the  elements  of  the  supply  problem 
and  of  complete  coordination  of  effort  between  the  pur- 
chasing agent  and  all  other  responsible  officials  having 
to  do  with  the  supply  problem. 

Compared  with  the  purchasing  problem  of  many  of 
our  large  industrial  corporations  the  government  pur- 
chasing problem  is  a  simple  one.  Government  busi- 
ness is  routine  to  a  large  extent,  making  it  easily 
possible  with  adequate  organization  and  procedure  tn 
plan  the  entire  supply  problem  considerably  in  advance 
of  immediate  requirements.  Changes  in  plan  need  not  be 
precipitately  made  to  meet  competitive  conditions,  and 
hence  there  is  little  danger  of  overinvestment  and  sur- 
plusage. The  course  of  government  business  is,  as  a 
rule,  placid  in  comparison  with  the  urgent  necessities  of 
a  railroad  or  of  a  busy  industrial  corporation;  the  prob- 
lem of  coordination  between  requirements  and  deliveries 
is,  therefore,  reduced  to  a  minimum  with  a  consequent 

3 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

avoidance  of  a  large  part  of  the  urgency  of  follow-up  to 
secure  timely  deliveries. 

The  greater  part  of  the  items  purchased  to  meet  the 
needs  of  government  business  may  be  readily  secured 
in  the  open  market  in  quantities  sufficient  to  meet  at 
least  temporary  needs  in  case  dealers  under  contract  fail 
to  meet  agreements.  Few  articles  need  be  made  to  or- 
der or  purchased  among  a  very  limited  number  of  deal- 
ers or  manufacturers.  A  busy  industrial  plant,  on  the 
other  hand,  purchases  vast  numbers  of  articles  which 
only  a  very  limited  number  of  manufacturers  or  dealers 
are  in  a  position  to  furnish  and  these  possibly  only  upon 
adequate  notice.  But  the  government  purchasing  agent 
may  have,  from  the  nature  of  the  articles  which  he  pur- 
chases, a  choice  between  many  dealers  in  each  class  of 
article. 

Indeed,  so  little  intricacy  does  the  supply  problem  of 
governments  present  on  its  purchasing  side  that  were 
the  purchases  of  New  York  City,  large  as  they  are, 
turned  over  to  the  purchasing  agent  of  one  of  our  larger 
railroads,  it  is  probable  that  he  would  find  but  few  diffi- 
culties involved  in  purchasing  at  favorable  prices  the 
precise  articles  required.  The  addition  of  food  supplies 
and  clothing  to  his  list  of  purchases  might  on  some  roads 
require  the  purchasing  agent  to  add  experts  to  his  staflf 
to  purchase  these  items;  the  great  majority  of  the  bal- 
ance of  purchases  required  for  the  government — sup- 
plies and  materials  for  construction,  repair  and  mainte- 
nance and  special  equipment — would  readily  and  with 
but  small  additional  trouble  he  handled  by  his  existing 
staff. 

Despite  the  simplicity  which  thus  apparently  char- 
acterizes the  technical  problem  of  government  purchas- 
ing, governments  have  in  the  past  with  few  exceptions 

4 


INTRODUCTION 

notoriously  failed  as  purchasers.  Too  often  is  the  as- 
sertion made,  with  truth,  that  a  government  far  from 
using  its  great  buying  power  to  secure  the  most  favor- 
able prices  is  found  bidding  against  itself.  Dealers  com- 
plain of  red  tape  which  hampers  them  in  bidding,  in  de- 
livering goods  and  in  securing  the  payment  of  bills. 
Government  executives  themselves  complain  of  delays 
between  the  issue  of  purchase  requisitions  and  the  avail- 
ability of  goods  for  use.  Citizens  generally  are  prone 
to  assert  that  graft  and  political  favoritism  taint  a  large 
part  of  government  purchasing. 

The  explanation  for  this  state  of  affairs  is  partly  his- 
torical and  partly  current.  Undoubtedly  much  of  the  in- 
efficiency alleged  to  exist  in  government  purchasing  is 
merely  the  reflection,  in  this  special  field  of  administra- 
tion, of  that  lack  of  centralization  and  integration  of 
function  which  so  generally  prevails  in  the  organization 
of  public  business.  This  condition  is  in  turn  the  product 
of  certain  historical  factors  and  tendencies  readily  trace- 
able in  the  development  of  governmental  organization  in 
this  country,  and  may  be  said  to  be  now  in  a  fair  way  of 
being  corrected.  In  the  rectification  which  is  now 
going  forward  in  so  many  fields  of  public  administration, 
the  centralization  of  government  purchasing  occupies  a 
conspicuous  place. 

Nevertheless,  the  slowness  with  which  basic  changes 
in  organization  are  effected  in  governments  still  remains 
a  serious  obstacle  to  this  tendency.  In  a  private  corpo- 
ration when  the  executive  committee  is  convinced  that 
a  change  in  organization  or  method  is  necessary,  the 
change  is  as  good  as  accomplished.  In  a  city,  unless  a 
large  degree  of  home  rule  be  granted,  an  able  and  force- 
ful executive  is  often  handicapped  by  being  forced  to 
turn  to  the  state  legislative  body  for  the  authority  to 

5 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

make  changes  in  simple  matters  of  organization  and 
method.  The  situation  is  not  much  improved  when  au- 
thority must  be  secured  by  a  referendum.  In  either  case 
political  give  and  take  must  be  considered  as  well  as  the 
efficiency  and  economy  reasonably  to  be  expected  from 
the  changes  sought.  The  possible  loss  of  place  to  certain 
employees  is  likely  to  have  a  disproportionate  influence 
on  the  result.  Nor  are  changes  in  organization,  in  them- 
selves desirable,  always  to  be  sought  unless  assurance 
is  had  that  the  personnel  of  the  new  organization  will  be 
so  recruited  as  to  insure  its  efficiency. 

The  second  element  which  complicates  the  govern- 
ment purchasing  problem  is  the  necessity  of  guarding, 
so  much  more  closely  than  is  found  necessary  in  private 
business,  against  unfair  or  corrupt  use  of  his  powers  by 
the  purchasing  officer.  The  nature  of  this  danger  and 
of  the  legal  restrictions  which  have  as  a  consequence 
been  generally  thrown  around  the  authority  of  the  gov- 
ernment purchasing  agent  are,  in  the  large,  too  well 
imderstood  to  require  explanation  here.  The  restric- 
tions in  question  constitute  indeed  the  outstanding  fea- 
ture of  the  government  purchasing  problem  and  perhaps 
the  chief  determinant  of  efficiency  in  government  pur- 
chasing. 

It  is  hoped  that  these  chapters  may  make  clear  the 
futility  of  many  of  these  restrictions,  and  that  they  will 
stimulate  consideration  of  how  these  may  be  either  elim- 
inated or  so  revised  as  to  make  the  purchasing  agent  a 
truly  responsible  executive,  vested  with  powers  adequate 
to  his  responsibilities. 


CHAPTER  n. 

THE  CENTRALIZATION  OF  PURCHASING  IN 
GOVERNMENTS 

As  business  and  administrative  organizations  con- 
tinually expand  in  size  and  complexity,  it  becomes  in- 
creasingly necessary  to  determine  with  respect  to  the 
auxiliary  business  functions  involved — as  personnel  ad- 
ministration, purchasing  and  accounting — to  what  ex- 
tent the  responsibility  for  such  functions  shall  be  re- 
moved from  the  operating  divisions  of  the  organization 
and  centralized  in  a  single  specialized  service.  With 
respect  to  no  function  is  this  problem  more  important 
than  that  of  purchasing. 

In  connection  with  government  purchasing  this  ques- 
tion assumes  even  a  greater  importance  than  attaches 
to  it  in  commercial  purchasing.  It  will  be  seen  in  the 
succeeding  chapter  that  governments  have  found  it  nec- 
essary to  hedge  about  with  restrictions  the  discretion 
vested  in  their  purchasing  officers,  and  that  the  proper 
scope  and  character  of  these  restrictions  constitutes  one 
of  the  chief  problems  in  connection  with  government 
purchasing.  The  solution  of  that  problem,  in  turn,  de- 
pends largely  upon  the  degree  to  which,  in  the  particu- 
lar governmental  organization  under  discussion,  re- 
sponsibility for  purchasing  has  been  centralized. 

Historically,  both  in  private  enterprise  and  in  gov- 
ernment, the  tendency  in  the  organization  of  the  pur- 
chasing function  has  been  toward  centralization.  In 
the  small  business  organization  the  distinction  between 

7 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

the  operating  and  procuring  functions  was  not  clearly 
drawn  because  both  were  performed  by  the  manager 
personally.  It  was  but  natural,  therefore,  that  as  the 
expansion  of  the  organization  necessitated  the  division 
of  the  operating  function  into  departments,  each  depart- 
ment head  should  continue  to  do  for  his  department 
what  the  proprietor  or  general  manager  of  the  smaller 
organization  had  done  for  the  enterprise  as  a  whole. 
Thus,  there  came  to  be  as  many  divisions  of  the  pur- 
chasing function  as  there  were  of  the  operating  function. 
In  governments  this  natural  condition  of  decentral- 
ization of  purchasing  was  powerfully  aided  by  the  in- 
herent lack  of  integration  in  governmental  organiza- 
tions. While  it  may  be  affirmed,  as  a  matter  of  theory, 
that  all  the  branches  of  a  given  government  have  the 
common  purpose  of  service  and  protection  to  its  con- 
stituency, the  almost  total  absence  of  working  relations 
frequently  found  between  the  various  branches  is  obvi- 
ous. It  is  not  surprising,  therefore,  that  difficulty  has 
been  found  in  securing  recognition  of  the  desirability  of 
centralizing  the  common  function  of  purchasing  for 
services  which  had  so  little  else  in  common. 

Advantages  and  Disadvantages  of  Centralization  of  Pur- 
chasing. Increasingly  there  has  made  itself  felt,  how- 
ever, in  both  commercial  and  governmental  practice,  a 
tendency  to  concentrate  responsibility  for  all  purchasing 
in  a  single  unit  of  the  organization.  The  advantages 
and  economies  which  it  has  been  sought  to  secure  by  this 
development  are  fairly  obvious.  Briefly,  they  may  be 
outlined  as  follows: 

I.     The  standardization  of  grades  and  varieties  of  ar- 
ticles purchased,  resulting  in  the  elimination  of 
8 


.^.      THE  CENTRALIZATION  OF  PURCHASING 

unduly  expensive  grades,  a  reduction  in  stocks 
to  be  carried,  and  in  purchases  in  bulk  rather 
than  in  small  quantities. 

2.  The  concentration  of  buying  power,  resulting  in 

lower  prices,  and  in  contracts  and  flexible  pur- 
chasing agreements  which  each  plant  could  not 
secure  separately,  and  furnishing  an  incentive  to 
dealers  to  give  the  best  possible  service  in  deliv- 
eries and  to  make  all  necessary  adjustments  in 
order  to  retain  business. 

3.  The  development  of  expertness  and  specialization 

in  the  purchasing  force,  resulting  in  low  prices, 
better  selection  of  purchases,  etc. 

4.  A  reduction  in  the  total  number  of  persons  em- 
ployed in  purchasing  and  related  work. 

5.  A  corresponding  specialization  and  reduction  in 

the  inspection  forces,  if  they  too  be  centralized  as 
is  commonly  the  case  where  purchase  is  central- 
ized. 

It  is  not  open  to  doubt  that  every  plan  for  the  centrali- 
zation of  purchases  will  effect,  in  greater  or  less  degree, 
the  realization  of  the  advantages  and  economies  just 
enumerated.  Just  as  surely,  however,  will  centraliza- 
tion, if  carried  beyond  a  certain  point,  result  in  delay, 
duplication  of  work  and  possible  loss.  Like  all  projects 
of  administrative  centralization,  the  centralization  of 
purchasing  makes  necessary  the  construction  and  oper- 
ation of  additional  machinery  of  correlation  and  co- 
ordination between  the  purchasing  and  the  operating  di- 
visions, and  if  this  becomes  unduly  elaborate  or  fails  to 
function  smoothly,  the  resulting  loss  may  easily  out- 
weigh the  gains  of  centralization. 

Just  how  far,  in  the  face  of  these  possible  disadvan- 

9 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tages,  centralization  of  purchasing  may  properly  be  car- 
ried in  any  given  case  can  of  course  be  determined  only 
from  a  thorough  study  of  the  particular  conditions  en- 
countered in  the  organization.  It  is  almost  impossible 
to  formulate  any  rules  which  may  guide  in  such  a  de- 
termination, but  it  will  be  of  value  to  examine  the  ex- 
perience of  several  corporations  and  municipalities 
which  have  developed  representative  centralized  pur- 
chase systems. 

Centralization  of  Purchasing  in  Business  Corporations. 

As  representative  of  the  business  corporations  of  the 
country  from  the  standpoint  of  purchasing  organiza- 
tion, there  have  been  selected  four  of  the  largest  tech- 
nical manufacturing  organizations,  one  of  the  largest 
construction  companies,  and  two  of  the  most  highly  or- 
ganized railroad  systems.  The  purchasing  organization 
of  each  of  these  will  be  outlined. 

General  Electric  Company.  This  company  operates  a 
chief  factory  at  Schenectady,  New  York,  and  seven  fac- 
tories in  various  cities  in  the  East,  and  a  mica  mine  and 
factory  in  Canada.  It  also  maintains  branch  offices  in 
all  parts  of  the  United  States  and  in  foreign  countries. 
The  range  of  articles  manufactured  by  it  is  exceedingly 
wide  and  for  the  most  part  highly  technical.  Besides 
purchasing  supplies,  materials  and  equipment  for  the 
operation  and  maintenance  of  its  factories,  it  purchases 
a  number  of  items  for  resale.  It  also  purchases  many 
special  articles  for  clients  who  desire  the  company  to  as- 
sume the  entire  responsibility  of  a  complete  installa- 
tion. 

Prices  are  secured,  dealers  selected  and  informal  con- 
tracts or  price  agreements  made  for  virtually  all  pur- 
chases by  the  central  purchasing  department  located  at 

10 


THE  CENTRALIZATION  OF  PURCHASING 

Schenectady.  Purchase  orders  are,  however,  issued 
for  all  materials  and  factory  supplies  by  each  factory 
through  an  "order  and  stores  department"  maintained 
by  it,  which  in  turn  acts  upon  the  advice  of  a  stock  de- 
partment in  the  factory.  Purchases  thus  made  by  the 
factory  are  delivered  direct  to  it.  Each  factory  "order 
and  stores  department"  handles  its  own  follow-up  and 
also  checks  its  own  invoices. 

A  few  emergency  purchases  are  made  direct  by  the 
several  "order  and  stores  departments"  at  the  factories, 
without  recourse  to  the  purchasing  department  for  a 
source  of  supply  and  a  price.  This  is  the  procedure  also 
for  a  few  purchases  which  obviously  must  be  made  lo- 
cally, such  as  of  building  sand.  Copies  of  all  purchase 
orders  are  sent  to  the  central  purchasing  department  for 
its  advice  and  a  complete  purchase  record  is  maintained 
there  for  each  factory  and  branch  office.  Duplicate 
copies  of  each  invoice  of  goods  purchased  under  price 
agreements  made  by  the  purchasing  department  are  also 
sent  to  it  for  a  rechecking  against  the  original  price 
agreement.  Payment  is  not  delayed  by  the  several  fac- 
tories, however,  to  await  this  rechecking,  which  is  found 
to  result  annually  in  many  successful  over-charge  claims 
in  addition  to  those  made  directly  by  the  several  fac- 
tories. In  addition  to  these  forms  of  control  the  cen- 
tral purchasing  department  prepares  consolidated  sta- 
tistical reports  of  purchases  for  the  advice  of  the  com- 
pany executives. 

The  procedure  with  respect  to  stationery  and  office 
supplies  and  minor  office  equipment  differs  from  that 
above  described.  All  purchases  of  this  class  are  made 
direct  by  the  central  purchasing  department  and  are  de- 
livered to  it  at  Schenectady,  there  to  be  stored  for  dis- 
tribution to  the  several  plants  and  branch  offices. 

II 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

Westinghouse  Blectric  &  Manufacturing  Company. 
This  company  operates  a  chief  factory  at  East  Pitts- 
burgh, four  plants  in  Pittsburgh  and  two  plants  in  other 
eastern  cities;  it  also  operates  four  subsidiary  plants  in 
eastern  cities  and  maintains  branch  offices  in  all  parts  of 
the  country.  The  range  of  its  purchases  is  somewhat 
the  same  as  that  of  the  General  Electric  Company. 

Control  over  purchases  for  all  these  plants,  except  for 
the  four  subsidiary  plants,  is  centralized  in  a  purchasing 
department  at  the  chief  factory  in  East  Pittsburgh.  As 
in  the  case  of  the  General  Electric  Company  it  secures 
prices  and  selects  dealers  and  makes  price  agreements 
for  virtually  all  supplies  purchased  by  the  company,  but 
in  addition  actually  issues  the  purchase  orders  on  advice 
of  the  several  plant  storekeepers.  Follow-up  of  all  pur- 
chase orders  issued  by  it  is  also  made  by  the  central  pur- 
chasing department,  but  deliveries  are  made  to  and  in- 
voices are  checked  at  the  several  factories. 

On  emergency  purchases  and  on  a  few  items,  the  pur- 
chase of  which  through  the  central  purchasing  depart- 
ment would  have  no  advantage,  purchase  orders  may 
be  issued  by  the  several  factories.  Complete  memoranda 
of  such  purchases  are,  however,  forwarded  to  the  cen- 
tral purchasing  office. 

Western  Blectric  Company.  This  company  does  both 
a  manufacturing  and  a  jobbing  business  in  electrical 
goods  of  all  sorts. 

A  central  purchasing  department  is  maintained  in 
New  York  City  but  purchasing  officers  are  also  main- 
tained in  the  branch  offices.  With  respect  to  certain 
major  items,  the  central  purchasing  office  not  only  enters 
into  contracts  and  price  agreements  but  purchases  for 
delivery  to  the  company's  main  stores  at  New  York  and 
Chicago.    With  respect  to  a  much  larger  class  of  items, 

12 


THE  CENTRALIZATION  OF  PURCHASING 

the  function  of  the  purchasing  department,  as  in  the 
General  Electric  Company,  is  merely  to  enter  into  the 
price  agreement,  purchase  orders  being  issued  under 
such  agreement  by  the  several  factories  and  branches 
to  meet  their  requirements. 

A  constant  control  is,  however,  maintained  by  the  cen- 
tral office  over  purchase  orders  issued  by  the  branch 
houses  with  a  view  to  apportioning  those  orders  among 
the  several  contractors  so  as  to  avoid  overtaxing  their 
resources.  For  this  purpose  a  service  division  in  the 
central  purchasing  department  makes  an  apportionment 
under  each  contract  quarterly  to  each  branch  house  and 
receives  advice  of  all  orders  issued  against  such  con- 
tracts. When  it  becomes  apparent  that  one  contractor 
is  getting  orders  too  far  in  advance  and  to  an  extent 
likely  to  delay  delivery,  the  service  division  cancels  some 
of  such  orders  and  places  them  with  a  contractor  not 
so  rushed.  In  case  all  firms  are  overcrowded,  new 
sources  of  supply  are  sought  and  new  contracts  let. 
From  each  manufacturer  a  weekly  report  is  received 
stating  the  amount  of  output,  the  quantity  inspected  and 
passed  and  the  total  capacity  of  the  plant.  The  latter 
information  is  necessary  in  order  to  give  the  purchasing 
department  an  idea  as  to  possible  increases  of  output 
essential  in  its  work  of  apportionment  of  purchase  or- 
ders. The  service  division  often  brings  pressure  to  bear 
to  force  a  manufacturer  temporarily  to  increase  his 
force  to  tide  over  an  urgent  necessity. 

Follow-up  of  purchase  orders  is  left  largely  to  the 
branch  offices  but  in  the  case  of  large  and  important  pur- 
chases and  of  articles  on  which  delivery  is  difficult  to  se- 
cure, shipping  orders  are  issued  directly  from  the  service 
division  which  then  brings  pressure  to  bear  to  secure 

13 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

prompt  delivery  in  accordance  with  agreements  and  in 
time  to  meet  requirements. 

Upon  numerous  items  purchases  are  made  locally  by 
the  branch  offices.  The  central  purchasing  office  receives 
copies  of  invoices  covering  all  such  purchases.  This 
procedure  enables  the  central  office  to  determine  what 
local  purchases  are  large  and  important  enough  to  be 
placed  under  contract  and  also  is  of  value  with  respect 
to  sources  of  supply  and  prices.  Its  most  direct  use, 
however,  is  in  affording  a  means  of  supervision  over 
local  purchases.  Prices  are  recorded  for  each  article 
and  comparisons  made  for  the  entire  country.  In  case 
one  branch  office  secures  a  materially  better  price  for  an 
article  than  does  another  an  explanation  is  sought.  In 
this  way  each  local  buyer  knows  whether  he  can  obtain 
a  lower  price  and  can,  as  a  rule,  make  use  of  that  source 
of  supply  provided  freight  is  not  prohibitive.  He  may 
also  use  the  lower  price  as  a  leverage  on  the  local  seller. 

International  Harvester  Company.  This  company 
comprises  a  number  of  agricultural  machinery  works,  a 
steel  company,  a  lumber  company,  a  twine  company  and 
several  rail  lines. 

A  central  purchasing  office  is  maintained  at  the  gen- 
eral offices  in  Chicago.  The  chief  function  of  this  de- 
partment is  to  secure  prices  and  make  price  agreements 
for  all  plants  in  America.  In  connection  with  steel  and 
other  primary  materials  the  purchasing  department  also 
issues  purchase  orders  to  meet  production  schedules  at 
the  several  factories.  Miscellaneous  items  not  under 
contract  are  also  purchased  directly  by  the  central  pur- 
chasing department.  For  most  standard  articles,  how- 
ever, as  indicated,  the  function  of  the  central  purchasing 
department  is  confined  to  the  making  of  contracts,  pur- 
chase orders  being  placed  direct  by  the  general  store- 

14 


THE  CENTRALIZATION  OF  PURCHASING 

keepers  of  the  several  plants,  who  also  are  responsible 
for  follow-up  and  for  the  checking  of  invoices.  For  such 
purchases,  copies  of  the  purchase  order  but  not  of  the 
invoice  are  sent  to  the  central  purchasing  department. 

The  several  plants  have  authority  to  buy  direct  in  case 
of  emergency  and  the  general  storekeeper  of  the  Ca- 
nadian plant  buys  direct  almost  all  production  materials 
peculiar  to  his  plant,  but  only  after  consultation  with 
the  central  office. 

American  Locomotive  Company.  The  main  factory 
of  this  company  is  located  at  Schenectady,  N.  Y.  Five 
other  factories  are  maintained  in  various  places  in  east- 
ern United  States  and  Canada.  The  purchasing  prac- 
tice of  this  company  is  similar  to  that  of  the  other  manu- 
facturing companies  above  discussed.  Prices  are  se- 
cured and  agreements  entered  into  by  a  central  pur- 
chasing department,  located  in  the  main  executive  offices 
in  New  York  City,  on  practically  all  production  mate- 
rials, general  plant  supplies  and  miscellaneous  articles 
required  by  all  the  factories.  The  procedure  by  which 
purchase  orders  are  placed  is,  however,  somewhat  un- 
usual. Following  customary  practice,  purchase  requisi- 
tions are  made  by  the  "material  supervisors"  (or  general 
storekeepers)  or  general  managers  of  the  several  plants. 
These  requisitions  are  forwarded  to  the  central  purchas- 
ing department,  which  notes  thereon  the  prices  under 
existing  contract  or,  if  no  contract  covering  the  item  is 
in  force,  secures  prices.  The  requisition  then  passes  to 
the  "general  material  supervisor"  or  the  mechanical  su- 
perintendent at  Schenectady  (depending  upon  the  nature 
of  the  articles  requisitioned).  Here  the  requisition,  if 
covering  a  stock  item,  is  checked  by  reference  to  a  mas- 
ter stock  record  covering  all  factories,  which  is  main- 
tained by  means  of  monthly  reports.    After  this  review, 

15 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

which  results  where  necessary  in  modification  of  the 
requisition,  the  requisition  passes  to  the  order  depart- 
ment at  Schenectady,  which  places  the  purchase  order. 
Follow-up  on  large  and  important  items  is  handled  by 
the  order  department,  but  on  the  majority  of  lesser  items 
it  is  handled  by  the  material  supervisors  at  the  several 
plants.  Invoices  are  also  checked  at  the  several  plants 
and  the  purchasing  department  is  not  connected  with 
them  in  any  way  except  on  appeal. 

As  in  the  case  of  the  other  companies  described,  pro- 
vision is  made  for  purchase  by  the  several  plants  to  meet 
emergency  needs,  and  for  the  purchase  of  a  few  articles 
which  could  not  be  handled  with  any  advantage  by  the 
New  York  office. 

Westinghouse,  Church,  Kerr  Company.  This  com- 
pany, with  its  main  executive  offices  in  New  York  City, 
is  engaged  in  the  designing  and  complete  construction 
of  industrial  and  engineering  projects  on  a  cost  plus  a 
fee  basis.  The  company  equips  completely  the  buildings 
which  it  constructs,  if  its  clients  so  desire,  even  to  the 
furniture  in  a  hotel.  No  contracts  are  sublet  by  this 
firm  but  specialists  on  its  payroll  take  charge  of  each  job. 

The  purchasing  department,  located  at  the  main  exec- 
utive offices,  purchases  virtually  all  the  supplies,  material 
and  equipment  needed  in  whatever  part  of  the  world. 
The  prime  function  of  this  department  is  to  secure  prices 
and  locate  sources  of  supply  on  the  basis  of  purchase 
requisitions  prepared  for  the  most  part  at  the  main  of- 
fices by  the  engineer  in  charge  of  a  particular  job.  On 
all  major  construction  items,  prices  and  dealers  having 
been  secured,  the  information  is  referred  to  the  engi- 
neer in  charge  of  the  job  with  whom  the  requisition 
originated,  and  he  makes  selection  of  the  dealer  whom 
he  considers  best  equipped  to  give  satisfaction.    On  items 

i6 


THE  CENTRALIZATION  OF  PURCHASING 

not  so  treated  the  purchasing  department  selects  the 
dealers.  In  either  case  the  order  is  issued  by  the  pur- 
chasing department.  Follow-up  is  left  to  the  engineer 
in  charge  of  the  job  in  the  field.  Invoices  are  checked 
by  the  billing  department  and  do  not  come  to  the  pur- 
chasing department  unless  a  discrepancy  in  prices  is 
noted  between  the  invoice  and  the  purchase  order. 

Minor  and  emergency  purchases  are  entrusted  to  the 
superintendents  of  construction  on  the  several  jobs. 
Copies  of  all  orders  for  such  local  purchases  are  for- 
warded to  the  central  purchasing  department  and  if  the 
prices  paid  locally  be  high,  that  department  negotiates 
for  adjustment. 

Atchison,  Topeka  &  Santa  Fe  Railroad  System.  Four 
lines  are  included  in  this  system,  namely,  the  Atchison, 
Topeka  &  Santa  Fe  Eastern,  the  Atchison,  Topeka  & 
Santa  Fe  Western,  the  Atchison,  Topeka  &  Santa  Fe 
Coastline,  and  the  Gulf,  Colorado  &  Santa  Fe  Railroads. 
For  all  except  the  last  named  there  is  a  general  pur- 
chasing agent,  with  office  at  Chicago,  who  makes  all  pur- 
chases except  of  ballast,  which  is  purchased  by  the  di- 
vision superintendents.  The  great  majority  of  items 
purchased  are  carried  in  stock  and  for  these  monthly 
requisitions  are  made  by  the  several  division  storekeep- 
ers through  the  general  storekeeper  at  Topeka,  who  fills 
them  from  his  general  stock,  orders  transfers,  revises 
requisitions  and  sends  the  balance  of  items  to  the  pur- 
chasing department.  The  purchasing  department  also 
follows  up  orders  and  checks  invoices. 

There  is  a  separate  purchasing  department  for  the 
Gulf,  Colorado  &  Santa  Fe  Railroad.  Copies  of  all  pur- 
chase orders  are  sent  to  the  general  purchasing  agent 
at  Chicago,  and  no  purchases  of  large  items  are  made 
except  with  his  approval  and  with  the  approval  also  of 

17 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

the  vice-president   in  charge  of  purchases  and  storage. 

New  York  Central  Lines.  The  New  York  Central 
Hnes  comprise  several  distinct  railroads,  each  of  which 
has  its  own  purchasing  agent.  There  is,  however,  a  gen- 
eral purchasing  agent  who  acts  in  a  supervisory  capacity 
with  respect  to  the  purchasing  agents  of  the  several 
roads.  His  office,  moreover,  contracts  direct  for  the 
purchase  of  coal,  rails  and  new  major  equipment  for  all 
the  railroads  in  this  system  (except  the  Big  Four  Rail- 
road, with  respect  to  which  he  acts  only  in  a  supervisory 
capacity).  The  procedure  with  respect  to  the  purchases 
made  by  the  individual  railroads  may  be  illustrated  by 
that  of  the  purchasing  department  of  the  eastern  division 
of  the  New  York  Central  Railroad  (separate  purchasing 
departments  being  maintained  for  the  divisions  east  and 
west  of  Buffalo).  As  in  the  case  of  the  Atchison,  To- 
peka  &  Santa  Fe  System,  requisitions  from  the  pur- 
chasing department  come  from  the  general  storekeeper, 
who,  in  turn,  bases  action  on  a  comparison  of  the  requisi- 
tions made  by  the  several  local  storekeepers  with  the 
master  stock  record. 

In  the  office  of  the  purchasing  agent  in  New  York, 
purchases  go  to  a  committee  on  requisitions,  consisting 
of  the  general  manager,  as  chairman,  the  purchasing 
agent,  the  superintendent  of  motive  power,  the  superin- 
tendent of  rolling  stock,  the  engineer  of  maintenance 
of  way,  the  auditor  of  revenue  and  the  general  store- 
keeper. This  committee  is  charged  with  the  final  re- 
sponsibility of  authorizing  the  purchase  of  all  material. 

Purchase  orders  are  issued  by  the  purchasing  depart- 
ment. Follow-up  is  left,  however,  chiefly  to  the  con- 
signees, the  purchasing  department  handling  matters  of 
follow-up  if  so  requested  by  consignees  in  cases  of  spe- 
cial emergency.    Invoices  are  received  by  the  purchasing 


THE  CENTRALIZATION  OF  PURCHASING 

department,  checked  for  prices  and  terms,  and  the  orig- 
inal and  duplicate  sent  to  the  consignee  for  certificate 
of  receipt. 

The  corporations  whose  purchasing  systems  have  been 
described  are  believed  to  be  representative  of  American 
industrial  organizations  generally.  From  an  examina- 
tion of  the  descriptions  given  it  will  be  seen  that  in  every 
case  there  has  been  established  a  greater  or  less  degree 
of  central  control  over  purchasing. 

In  the  manufacturing  corporations  described,  having 
two  or  more  plants  at  widely  separated  points,  it  is  found 
that  the  central  purchasing  office  in  all  cases  secures 
prices,  selects  dealers  and  enters  into  price  agreements 
and  contracts  for  virtually  all  the  purchases  of  the  con- 
cern, exceptions  being  made  only  for  emergency  pur- 
chases, or  for  a  few  items  which  the  local  office  is  ob- 
viously in  as  good  or  better  position  to  purchase  than 
is  the  central  office.  A  similar  arrangement  is  found 
in  the  construction  company  described  despite  the  wide 
area  covered  by  its  purchases.  In  the  railroads,  finally, 
owing  to  their  requirements  being  well  standardized  and 
fairly  easy  to  anticipate,  the  highest  degree  of  centrali- 
zation of  purchasing  is  found,  local  operating  officials 
and  storekeepers  being  wholly  divested  of  authority  to 
make  independent  purchases. 

It  is  plain  that  in  no  case  is  the  variety  or  technical 
character  of  the  items  purchased  considered  an  obstacle 
to  the  centralization  of  the  functions  of  securing  prices 
and  locating  the  sources  of  supply.  Variety  of  purchases 
is  indeed  regarded  as  enforcing  the  desirability  of  cen- 
tralization, since  a  higher  degree  of  specialization  is  ob- 
tainable in  a  central  purchasing  staff  than  in  those  of  the 
several  units.  Again,  with  respect  to  articles  of  a  highly 
technical  character,  it  is  found  that  through  technical 

19 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

specifications,  thoroughly  understood  and  constantly- 
used,  the  purchasing  specialists  in  the  central  depart- 
ment are  fully  as  successful,  and  in  most  cases  more  so, 
in  securing  the  precise  article  needed  as  those  who  use 
the  articles  purchased. 

It  may  thus  be  said  that  there  is  substantial  agree- 
ment among  industrial  executives  that  it  is  desirable 
and  practicable  to  centralize  control  over  the  prices  at 
which  goods  shall  be  purchased  and  over  the  sources 
from  which  they  shall  be  secured.  Beyond  this  point 
agreement  is  less  general.  Thus,  practice  differs  with 
respect  to  the  issuance  of  purchase  orders  against  price 
agreements  or  contracts.  In  some  of  the  corporations 
cited  they  are  issued  by  the  central  purchasing  office  (or 
central  storekeeping  office)  ;  in  others  by  the  several 
plants.  A  similar  variation  of  practice  is  found  with 
respect  to  the  follow-up  of  orders  to  secure  prompt  de- 
livery and  the  checking  of  invoices.  In  general  it  may 
be  said  that  under  normal  market  and  industrial  condi- 
tions the  centralization  of  these  functions  is  found  to 
be  practicable,  but  that  under  disturbed  conditions  the 
difficulty  of  securing  a  sufficiently  close  coordination  be- 
tween the  purchasing  department  and  plants  requiring 
purchases  to  insure  the  proper  inflow  of  materials,  ren- 
ders it  inadvisable  for  the  central  purchasing  depart- 
ment to  attempt  to  issue  and  follow  up  all  purchase 
orders  for  widely  separated  plants. 

Whatever  the  degree  of  centralization  of  purchasing 
thus  obtaining  in  industrial  practice,  it  will  as  a  rule  be 
found  that  the  procedure  provided  is  not  regarded  as 
rigid  and  inflexible.  On  the  contrary,  flexibility  is  ex- 
pressly provided  for  so  that  under  changing  conditions 
of  market  or  of  urgency  of  requirements,  purchasing 
may  be  centralized  or  decentralized  as  the  central  exec- 

20 


THE  CENTRALIZATION  OF  PURCHASING 

utive  officers  deem  best.  In  normal  times,  when  prices 
are  stable  and  a  corporation's  output  is  fairly  steady,  it 
is  found  possible  to  purchase  under  highly  centralized 
procedure,  but  in  times  of  fluctuating  markets,  poor 
transportation  conditions  and  emergency  output,  it  is  in- 
evitable that  emergency  purchases  necessarily  left  to  the 
several  plants  will  increase  in  number. 

Though  the  degree  of  responsibility  in  purchasing 
matters  entrusted  to  the  several  plants  or  major  operat- 
ing units  varies,  it  is  found  that  in  each  of  them  the 
supervision  and  control  of  all  such  matters — price  se- 
curing, issuance  of  purchase  orders,  follow-up,  and 
checking  of  invoices — is  completely  centralized  for  the 
plant  or  unit  as  a  whole.  In  no  case  does  the  division 
of  any  of  these  functions  descend  below  the  whole  plant 
or  major  operating  unit. 

With  respect  to  all  the  variations  noted,  it  should  be 
pointed  out  that  they  do  not  in  every  case  represent  di- 
verse views  of  proper  procedure  by  the  several  corpora- 
tions mentioned.  In  many  cases  they  reflect  merely  the 
degree  to  which  the  central  administration  of  the  corpo- 
ration as  a  whole  has  been  developed,  this  depending  in 
many  cases  upon  the  newness  of  consolidation,  and  in 
other  cases  upon  the  variety  of  work  of  the  several  con- 
stituent plants  composing  the  corporations,  and  in  still 
other  cases  upon  the  geographical  location  of  the  plants. 

Advantages  of  Centralization  of  Purchasing  in  Cities. 

The  chief  lesson  of  business  experience  in  the  central- 
ization of  purchasing  and  its  related  functions  would 
seem  to  be  that  its  practicability  varies  according  as  the 
operating  conditions  to  be  met  are  stable  and  predictable 
or  the  reverse.  If  this  be  true,  the  thorough  applicability 
of  centralization   of  purchasing  to  city   governments 

21 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

would  seem  clear.  The  purchase  requirements  of  cities 
are  fairly  steady,  both  as  to  quantity  and  quality.  There 
arise  few  emergencies  or  exceptional  requirements  not 
easily  anticipated.  In  city  purchases  there  are  few 
highly  technical  requirements  such  as  exist  among  many 
industrial  plants.  Lastly,  there  is  in  cities  no  geograph- 
ical.obstacle  to  centralization  of  purchasing  such  as  ex- 
ists in  many  private  corporations  with  widely  separated 
plants. 

There  exist,  moreover,  in  city  governments  addi- 
tional reasons  for  the  centralization  of  purchases  which 
are  not  found  in  equal  measure  under  commercial  con- 
ditions. The  numerous  sources  of  annoyance  to  dealers 
seeking  to  do  business  with  the  city — the  necessity  of 
calling  at  widely  separated  places  to  examine  specifica- 
tions and  samples,  and  the  formalities  involved  in  filing 
bids,  in  making  security  deposits,  in  securing  prompt 
payment  of  bills,  etc. — all  these  may  be  materially  re- 
duced by  a  single  purchasing  agency,  and  competition 
for  the  city's  business  correspondingly  increased.  Cen- 
tralization of  purchasing  makes  possible  central  stores 
control  and  the  development  where  desirable  of  central 
delivery  and  storage,  thus  securing  the  advantage  of 
central  inspection  and  the  quick  delivery  to  departments 
of  articles  not  readily  procurable  in  the  open  maket. 
Aside  from  its  purchasing  functions  the  central  pur- 
chasing agency  furnishes  a  convenient  mechanism  for 
handling  the  sale  of  articles  no  longer  needed  (a  fea- 
ture of  city  business  seldom  properly  handled  in  the  ab- 
sence of  central  control),  for  the  interchange  of  supplies 
and  equipment  between  departments,  and  for  the  mak- 
ing of  arrangements  and  contracts  for  repairs  and  other 
services.  With  respect  to  certain  items  such  an  agency 
may,,  moreover,  be  entrusted  with  the  function  of  re- 

22 


THE  CENTRALIZATION  OF  PURCHASING 

vising  departmental  requisitions  and  thereby  checking 
the  wasteful  use  of  minor  supplies  frequently  found  in 
city  business. 

More  far-reaching  than  any  of  these  effects,  however, 
is  the  improvement  of  what  may  be  termed  the  morale 
of  city  purchasing.  The  centralization  of  all  purchasing 
in  a  single  office  makes  that  office  worthy  of  the  best 
efforts  of  a  skilled  administrator.  But,  even  aside  from 
the  direct  improvement  in  personnel,  the  opportunities 
for  petty  graft  and  favoritism  are  appreciably  lessened 
when  all  purchases  are  issued  through  a  central  office, 
which  stands  always  in  the  full  light  of  publicity,  instead 
of  through  a  score  or  more  of  obscure  departmental  pur- 
chasing agents.  As  the  city's  purchasing  procedure  thus 
in  increasing  measure  gains  the  public  respect,  it  becomes 
increasingly  possible  to  ameliorate  or  suspend  those  re- 
strictions on  the  discretion  of  the  purchasing  agent 
which  are  otherwise  so  necessary  an  evil  in  city  pur- 
chasing. 

Centralization  of  Purchasing  Now  Found  in  City  Gov- 
ernments. Despite  the  indisputable  advantages  which 
thus  attach  to  centralization  of  purchase  for  cities,  and 
which  have  indeed  been  realized  in  a  measure  here  and 
there  among  cities,  the  progress  of  the  movement  to- 
ward centralization  has  been  slow.  Of  113  cities  from 
which  statements  have  been  received,  or  which  have 
been  investigated  in  person  by  the  author,  64  have  cen- 
tralized their  purchasing  in  greater  or  less  degree.  That 
even  in  these  cities  there  is  still  opportunity  for  a  con- 
siderable increase  in  the  degree  of  centralization  at- 
tained is,  however,  evident  from  the  account  below  given 
of  the  purchasing  procedure  of  representative  cities. 
New  York  City.    For  three  years  New  York  City  has 

23 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

been  purchasing,  through  consolidated  proposals  and 
contracts,  supplies,  materials  and  equipment  for  the  de- 
partments directly  under  the  mayor.  New  York  City's 
charter  contemplates  purchases  by  each  department  and 
office  independently,  and  consolidated  purchasing  has 
been  conducted,  without  charter  amendment,  by  cooper- 
ation of  the  heads  of  14  large  departments  and  of  14 
smaller  offices.  The  mayor's  central  purchase  commit- 
tee, appointed  in  November,  1914,  and  consisting  of 
four  city  officials  with  a  salaried  secretary,  associated 
with  itself  the  departmental  officials  most  familiar  with 
purchasing  and  the  needs  of  their  departments.  From 
this  committee,  17  subcommittees  were  selected  to  co- 
operate in  the  preparation  of  joint  invitations  for  bids, 
with  the  object  that  each  proposal  should  represent  the 
best  purchasing  experience  in  the  city  government.  The 
plan  of  operation  of  the  central  purchase  committee  is 
as  follows: 

1.  The  submission  by  departments  to  the  central  of- 
fice of  estimates  of  quantities  to  be  contracted  for 
is  according  to  a  schedule,  precedence  being  given 
to  supplies  of  current  indispensable  use. 

2.  By  conference  of  subcommittees  in  charge  of  each 
class  of  materials  necessary,  essential  changes  in 
specifications  are  made,  unnecessary  grades  and 
varieties  of  articles  eliminated,  and  the  terms  of 
invitations  to  bid  standardized  and  made  as  favor- 
able as  possible  to  dealers. 

3.  Contract  proposals  are  advertised  over  the  signa- 
tures of  the  heads  of  the  several  departments  con- 
cerned. 

4.  Bids  are  opened  at  the  central  office  in  the  pres- 
ence of  the  heads  of  departments  on  the  day  and 
at  the  hour  advertised. 

24 


THE  CENTRALIZATION  OF  PURCHASING 

5.  Upon  the  basis  of  figures  showing  the  status  of  ap- 
propriations furnished  by  each  department  con- 
cerned in  a  purchase  proposal,  advices  of  award 
are  prepared  by  the  central  office  and,  after  signa- 
ture by  the  heads  of  the  several  departments,  these 
are  forwarded  to  the  finance  department  for  ap- 
proval of  sureties,  notices  of  award  being  at  the 
same  time  sent  to  successful  bidders. 

6.  Contracts  usually  including  the  consolidated  re- 
quirements of  several  departments  are  signed  by 
the  dealers  and  by  heads  of  departments. 

7.  After  final  approval  as  to  form  by  the  law  depart- 
ment and  certification  of  funds  by  the  finance  de- 
partment, contracts  are  forwarded  to  contractors 
and  certified  copies  thereof  to  the  several  depart- 
ments concerned. 

The  total  amount  of  supplies  purchased  by  the  com- 
mittee during  its  first  year  of  operation  was  $3,636,707, 
approximately  42  per  cent  of  the  total  appropriations 
and  special  revenue  bonds  allotted  to  the  mayor's  de- 
partments for  the  purchase  of  supplies,  materials  and 
equipment.  The  balance  of  the  purchases  was  left  to  the 
several  departments  and  offices,  that  is,  purchases  of  less 
than  $1,000  in  value  which  the  departments  or  offices 
did  not  consider  it  essential  to  purchase  under  a  formal 
contract  or  which  were  precluded  from  this  method  of 
purchase  by  an  emergency.  The  following  beneficial 
results  have  been  secured  by  the  operation  of  this  form 
of  centralized  price  securing: 

I.  Competition  has  been  increased  through  the  con- 
solidation of  mailing  lists  hitherto  used  by  the  sev- 
eral  departments,   and   by   making   specificationf 

25 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

and  proposals  more  attractive  through  joint  effort 
of  the  departments. 

2.  Prices  secured  have  been  entirely  satisfactory  to 
all  departments  and  in  many  instances  have  been 
better  than  those  previously  secured,  consolidation 
of  quantities  and  improved  specifications  and  de- 
livery conditions  having  enabled  dealers  to  figure 
closely.  For  example,  coffee  was  standardized  by 
reducing  seven  kinds  to  two,  and  the  entire  quan- 
tity required  for  the  year  for  all  four  institutional 
departments  was  advertised  in  one  proposal  for 
delivery  in  bulk,  green,  to  one  point,  there  to  be 
roasted  by  the  department  of  public  charity  and 
distributed  by  existing  means  to  points  of  use ;  the 
result  of  this  instance  was  a  reduction  in  the  aver- 
age price  per  pound  of  coffee  from  $.168  to  $.139, 
which  latter  price  includes  the  cost  of  roasting  and 
an  allowance  for  shrinkage  during  the  roasting 
process.  This  reduction  in  the  price  of  coffee  on 
376,000  pounds  required  for  one  year's  consump- 
tion for  these  four  institutional  departments  re- 
sulted in  a  saving  of  some  $10,000. 

3.  The  expense  to  the  city  of  printing,  advertising 
and  distributing  proposals  has  been  greatly  re- 
duced, the  55  proposals  advertised  through  the 
committee  during  its  first  year  being  the  equivalent 
of  173  individual  departmental  proposals,  and  the 
499  contracts  and  open  order  agreements  executed 
in  this  period  through  the  committee  being  the 
equivalent  of  1,149  individual  departmental  con- 
tracts and  open  market  order  agreements. 

4.  By  combining  the  experience  of  the  departments 
and  by  maintaining  close  contact  with  dealers  in 
each  field  cHf  purchase,  the  central  purchasing  com- 

26 


THE  CENTRALIZATION  OF  PURCHASING 

mittee  was  enabled  to  recommend  many  beneficial 
changes  in  existing  specifications  and  was  afforded 
a  favorable  opportunity  to  test  the  merits  of  many 
tentative  specifications  not  yet  definitely  adopted. 
In  short,  expertness  has  been  developed  by  speciali- 
zation in  the  purchase  of  each  class  of  articles 
needed. 
5.  The  establishment  of  a  central  sample  room  added 
to  the  convenience  of  bidders,  and  the  central  pur- 
chasing office  also  afforded  an  opportunity  for  ad- 
justment of  difficulties  arising  from  inspection  or 
from  delays  in  the  payment  of  claims.  Dealers 
have  been  brought  to  realize  that  city  business  is 
good  business.  Furthermore,  the  expense  to  deal- 
ers of  furnishing  security  deposits  with  bids  and 
of  executing  contract  bonds  has  been  considerably 
reduced  by  means  of  consolidation  of  purchase 
contracts. 

On  January  i,  1917,  after  two  years  of  successful 
operation  in  New  York  City  of  cooperative  contracting 
for  all  departments  and  offices  under  the  mayor,  a  step 
was  taken  toward  centralizing,  under  the  central  pur- 
chasing committee,  open  market  as  well  as  contract  pur- 
chasing. 

Chicago.  Chicago  has  had  a  degree  of  central  pur- 
chasing for  all  departments  since  1898,  when  the  de- 
partment of  supplies  or  purchasing  department  was  cre- 
ated, under  the  direction  of  a  "business  agent." 

This  department  purchases  upon  requisition  from  de- 
partments all  supplies  and  materials  and  lets  all  contracts 
for  labor  in  cases  wherein  the  cost  is  less  than  $500. 
The  department  from  time  to  time  is  requested  by  the 
business  agent,  as  required  by  law,  to  submit  estimates 

27 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

of  quantities  of  supplies  and  materials  needed  during  a 
specified  period  of  time,  but  only  recently  (in  1914) 
was  authority  granted  to  the  purchasing  department  to 
contract  for  quantities  of  total  value  in  excess  of  $500; 
even  now  contracts  are  limited  to  $2,500  and  to  a  period 
of  time  not  exceeding  six  months.  Therefore,  in  spite 
of  the  fact  that  the  corporation  counsel  has  interpreted 
this  amendment  of  1914  as  requiring  the  business  agent 
to  call  upon  the  department  for  estimates  covering  six 
months'  supply,  this  authority  to  contract  between  $500 
and  $2,500  is  not  made  use  of  by  the  business  agent 
since  the  maximum  limit  on  contracts  is  too  low  and 
would  require  too  many  contracts  to  cover  the  needs  of 
the  department.  Therefore,  purchases  of  between  $500 
and  $2,500  are,  for  the  most  part,  left  to  the  individual 
departments. 

For  purchases  below  $500  the  business  agent  makes 
all  purchases  on  contract  or  open  market  order,  except 
that  the  commissioner  of  health  makes  all  purchases  and 
lets  all  contracts  for  technical  supplies  for  his  depart- 
ment, and  also  on  emergency  may  contract  for  the  print- 
ing, publication  and  dissemination  of  information  rela- 
tive to  the  treatment  or  prevention  of  contagious  or  epi- 
demic diseases  in  cases  wherein  the  cost  is  less  than  $250. 

The  business  agent  is  charged  with  the  responsibility 
of  caring  for  all  stock  purchased  by  him,  and  for  issu- 
ing this  stock  on  requisition,  but,  as  a  matter  of  fact, 
his  stock  for  the  most  part  consists  only  of  stationery 
and  office  supplies. 

In  view  of  the  limitations  of  the  present  legal  author- 
ity covering  the  scope  of  the  work  of  the  purchasing 
department,  the  business  agent  has  recently  recom- 
mended that  the  department  be  given  authority  to  pur- 
chase supplies  of  whatever  nature  and  to  whatever  value 

28 


THE  CENTRALIZATION  OF  PURCHASING 

for  the  city,  with  the  possible  exception  of  coal,  fire  en- 
gines and  pumping  machinery.  This  would  abolish  the 
$2,500  limit  on  contracts.  He  further  recommends  that 
"suitable  warehouse  room  be  maintained  for  the  stor- 
ing of  such  materials  as  are  practicable  and  economic  to 
carry  in  stock,"  and  that  all  testing  laboratories  be  lo- 
cated in  this  warehouse  building  and  that  all  inspections, 
as  far  as  practicable,  be  made  there. 

Meanwhile,  the  commissioner  of  public  works  has  es- 
tablished a  purchasing  and  storing  system  which  he  has 
placed  at  the  service  of  the  other  departments.  Under 
this  system  any  department  may  draw  on  the  stock  of 
materials  maintained  at  the  recently  completed  store- 
house of  the  engineering  bureau  of  this  department, 
which  buys  in  large  quantities  under  contract  and  sells 
goods  to  other  departments  at  cost  plus  a  percentage  to 
cover  overhead  and  handling  charges. 

Baltimore,  Md.  In  this  city  the  board  of  awards  is 
established  by  charter  as  the  purchasing  agency.  This 
board  consists  of  the  mayor,  the  comptroller,  the  presi- 
dent of  the  second-branch  city  council,  the  city  solicitor 
and  the  city  register.  On  January  i,  191 6,  an  assistant 
was  appointed  by  the  board  of  awards,  and  authority 
taken  from  the  several  departments  to  make  any  pur- 
chases except  in  emergencies.  The  purchasing  depart- 
ment, under  the  direction  of  this  assistant,  now  takes  ac- 
tion on  all  requisitions  for  all  city  departments  except 
the  department  of  education.  The  follow-up  of  purchase 
orders  is  left  to  the  several  departments,  as  is  also  in- 
spection of  deliveries.  Dealers'  invoices  are  received 
first  by  the  purchasing  agent,  by  whom  they  are  checked 
for  price  and  are  then  transmitted  to  the  department 
concerned  for  certification  of  quantity  and  quality  of 
deliveries;  they  are  then  sent  direct  by  the  department 

29 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

to  the  city  comptroller  for  payment.  No  central  stores 
have  as  yet  been  established. 

Minneapolis,  Minn.  The  purchasing  department  of 
this  city  was  created  by  ordinance  of  December  22,  191 1. 
This  department  purchases  all  supplies  and  materials 
required  for  all  departments,  including  the  board  of  edu- 
cation.^ Emergency  purchases  may  be  made  by  the  sev- 
eral departments  and  boards,  the  heads  thereof  being  re- 
quired to  present  requisitions  for  such  supplies  imme- 
diately to  the  purchasing  agent,  stating  thereon  that 
purchases  have  been  made,  with  an  explanation  of  the 
emergency.  Awards  on  contracts  are  made  by  the  pur- 
chasing agent  in  consultation  with  the  departments. 
Purchase  orders  are  issued  by  the  purchasing  depart- 
ment and  are  followed  up  by  the  departments  making 
requisitions.  Inspection  is  left  to  the  several  depart- 
ments. The  purchasing  agent  is  authorized  by  ordinance 
to  accept  or  reject  any  delivery  and  may  require  the  head 
of  any  department  or  board  to  make  an  inspection  with 
him.  Invoices  are  received  by  the  purchasing  agent  and 
forwarded  to  the  departments  for  certificates  of  receipt 
and  quality.  When  properly  certified  they  are  returned 
to  the  purchasing  agent  who  forwards  them,  if  correct, 
to  the  city  comptroller  for  payment.  No  central  stores 
are  conducted  by  the  purchasing  agent. 

Cleveland,  O.  Central  purchase  by  this  city  is  pro- 
vided for  by  its  19 13  charter,  which  groups  the  division 

^  Exceptions  are  made,  however,  in  the  ordinance  in  the  following 
cases:  (i)  Food  supplies  for  prisoners  in  the  city  jail,  which  may  be 
purchased  by  the  police  matron,  subject  to  the  approval  of  the  pur- 
chasing agent;  (2)  supplies  for  refectories  and  refreshment  stations 
of  the  board  of  park  commissioners,  and  for  the  lunch  rooms  and 
domestic  science  department  of  the  board  of  education;  (3)  books, 
periodicals  and  magazines  for  the  library  board  and  the  board  of 
education,  and  for  the  art  museum,  and  (4)  food  supplies  for  the 
poor  department,  and  seasonable  fruit  and  vegetable  supplies  for  the 
city  hospital. 

30 


THE  CENTRALIZATION  OF  PURCHASING 

of  purchases  and  supplies  under  the  director  of  the  de- 
partment of  finance.  This  division  is  also  directed  by 
the  charter  to  maintain  central  stores.  All  purchases 
for  all  departments  are  made  through  this  division,  ex- 
cept in  emergencies.  Purchases  of  over  $i,ooo  are  ad- 
vertised in  the  city  record.  Bids  on  contracts  of  over 
$i,ooo  are  opened  by  the  commissioner  of  supplies,  then 
turned  over  to  the  department  which  made  requisition 
therefor  and  then  transmitted  by  the  head  of  the  de- 
partment concerned,  with  his  recommendation  as  to  ac- 
ceptance, to  the  board  of  control,  consisting  of  the  mayor 
and  the  directors  of  finance,  service,  safety,  welfare  and 
utilities,  which  makes  the  final  award.  Purchases 
amounting  to  under  $i,ooo  are  made  after  publicity  has 
been  secured  by  means  of  bulletin  board  publication. 
Prices  of  many  items  are  covered  by  informal  price 
agreements,  in  some  cases  these  agreements  providing 
for  variance  in  market  quotations.  The  purchasing  de- 
partment issues  all  purchase  orders,  but  only  after  cer- 
tification by  the  finance  department  as  to  the  existence 
of  funds  in  the  proper  appropriation.  Follow-up  of  pur- 
chase orders  is  left  to  the  departments,  as  is  also  in- 
spection of  deliveries. 

Invoices  are  sent  direct  by  dealers  to  the  division  of 
purchases  and  supplies,  where  they  are  checked  for 
prices  and  terms,  and  also  against  a  receiving  tally  for- 
warded by  the  department  receiving  the  goods. 

The  ordinance  creating  the  division  of  purchases  and 
supplies  provides  that  the  commissioner  of  supplies  shall 
supervise  all  storerooms  and  warehouses  of  the  depart- 
ments and  that  all  employees  shall  work  under  his  su- 
pervision. The  commissioner  is  empowered  by  the  or- 
dinance to  increase  or  decrease  the  number  of  storerooms 
and  warehouses  with  the  consent  of  the  board  of  con- 

31 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

trol.  This  particular  authority  has  not,  however,  been 
put  into  effect,  and  the  central  stores  of  the  purchas- 
ing division  are  as  yet  very  limited  in  the  variety  and 
quantity  of  articles  carried. 

Philadelphia,  Pa.  The  purchasing  department  of  this 
city,  created  by  act  of  assembly  in  1903  to  "have  the 
direction,  control  and  administration  of  the  purchase  of 
supplies  and  of  articles  of  personal  property  required  in 
the  conduct  of  the  business  of  the  city,"  purchases  every- 
thing for  the  city  of  Philadelphia  except  books,  prints, 
curios  and  specialties  for  the  city's  libraries  and  mu- 
seums. In  this  city  all  appropriations  for  purchases  are 
made  to  and  expended  by  the  department  of  supplies, 
allotments  being  made  to  the  several  departments  in  the 
act  of  appropriation.  Purchases  of  over  $500  in  amount 
are  formally  advertised.  Formal  contracts  are  required 
on  all  purchases  of  over  $100. 

Purchase  orders  are  issued  by  the  department  of  sup- 
plies, but  are  followed  up  by  the  departments  for  which 
purchases  are  made. 

Inspection  of  deliveries  is  made  at  points  of  de- 
livery by  a  corps  of  inspectors  of  the  department  of  sup- 
plies. No  central  stores  are  conducted  by  the  depart- 
ment of  supplies. 

Des  Moines,  la.  In  this  city  the  auditor  is  the  pur- 
chasing agent  for  all  articles  required  by  the  city.  The 
ordinances  require  that  prior  to  the  beginning  of  each 
fiscal  year  the  various  superintendents  of  departments 
submit  to  the  audit  department  a  schedule  of  materials 
and  supplies  necessary  to  carry  on  their  business  for  the 
ensuing  year.  Thereupon,  bids  are  solicited  and  con- 
tracts awarded.  This  is  the  system  pursued  for  all  sup- 
plies of  a  general  and  miscellaneous  character.  For 
machinery  and  other  exceptional  articles,  the  city  coun- 

32 


THE  CENTRALIZATION  OF  PURCHASING 

cil,  consisting  of  the  five  city  commissioners,  asks  for 
bids  and  directs  the  purchasing  agent  to  issue  purchase 
orders  for  the  articles  and  to  the  dealers  selected.  For 
minor  articles  not  included  in  the  annual  estimates,  pur- 
chase is  made  on  requisition  to  the  purchasing  agent, 
who  uses  his  discretion  as  to  the  method  of  purchase 
and  as  to  the  award. 

Cincinnati,  O.  Central  purchase  is  provided  for  in 
this  city  through  a  supply  department  which  is  part  of  the 
department  of  general  administration.  This  supply  de- 
partment purchases  all  articles  for  all  departments  and 
contracts  for  the  repair  of  personal  property.  It  also 
has  charge  of  the  selling  or  disposal  otherwise,  of  all  per- 
sonal property  not  needed  for  public  use. 

This  city  makes  important  use  of  the  bulletin  board 
method  of  securing  publicity  on  its  purchase  require- 
ments. Under  this  system,  as  practiced  in  this  city  simi- 
larly to  Baltimore,  requisitions  for  the  several  depart- 
ments are  submitted  on  a  schedule  which  requires,  for 
example,  that  bids  for  groceries  be  opened  on  Monday 
at  lo  A.M.;  for  coal,  asphalt,  brick,  cement,  etc.,  on 
Tuesday;  for  harness  and  saddlery,  rubber  goods,  etc., 
on  Wednesday;  for  drugs  and  chemicals,  hospital  sup- 
plies, etc.,  on  Thusrday;  for  janitors'  supplies  and  laun- 
dry supplies,  on  Friday;  for  dry  goods,  notions,  etc.,  on 
Saturday.  The  classes  of  purchases  mentioned  are 
merely  illustrative,  the  schedule  for  each  day  including 
fifteen  or  more  classes  of  items.  Departments  are  re- 
quired to  submit  requisitions  three  days  in  advance  of 
the  date  on  which  bids  to  fill  them  will  be  opened  in  or- 
der that  they  may  be  posted  two  full  days  on  the  bulle- 
tin board.  Dealers  are  expected  to  send  representatives 
to  the  office  of  the  purchasing  agent  to  make  copies  of 
requisitions.     This  expectation  has  not  been  fully  met, 

33 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

however,  and  the  bulletin  board  method  is,  therefore, 
supplemented  by  requests  for  bids  by  telephone  and  mail. 
All  purchases  of  over  $500  in  amount  are  formally  ad- 
vertised, in  addition  to  being  posted  on  the  bulletin  board. 

Purchase  orders  against  formal  contracts  are  issued 
by  the  several  departments.  Purchase  orders  on  non- 
contract  purchases,  that  is,  on  purchases  of  less  than 
$500  in  amount,  are  issued  by  the  purchasing  depart- 
ment. Emergency  purchases  are  made  by  the  several 
departments  without  recourse  to  the  purchasing  depart- 
ment. The  follow-up  of  purchase  orders  is  largely  left 
to  the  several  departments. 

Inspection  of  deliveries  is  conducted  by  the  several 
departments  on  purchases  of  minor  importance.  On 
more  important  purchases  inspections  are  made  by  three 
inspectors  attached  to  the  purchasing  department.  These 
inspectors  inspect  all  important  deliveries  except  grain. 
On  this  item  the  chamber  of  commerce  inspection  and 
certificate  suffices. 

Invoices  covering  all  purchases  are  sent  by  dealers  in 
triplicate  to  the  purchasing  department  where  they  are 
checked  as  to  price.  One  copy  is  retained  and  the  other 
two  are  forwarded  to  the  department  for  which  the  pur- 
chases are  made.  In  the  several  departments,  one  copy 
of  the  invoice  is  retained  and  the  other  copy  is  returned 
to  the  purchasing  department  with  a  voucher  and  a  cer- 
tificate of  receipt  attached.  In  the  purchasing  depart- 
ment these  are  matched  against  the  report  of  the  pur- 
chasing department  inspector,  this  report  being  made  on 
a  copy  of  the  purchase  order  when  complete  and  satis- 
factory delivery  has  been  made. 

The  city  charter  provides  that  departments  may  se- 
cure articles  from  the  storehouses  or  warehouses  of  the 
purchasing  department.    Ten  thousand  dollars  has  been 

34 


THE  CENTRALIZATION  OF  PURCHASING 

provided  as  a  rotating  store  fund.  This  fund  is  used  to 
provide  a  small  stock  of  articles  purchased  in  sufficient 
quantity  to  obviate  the  necessity  of  small  purchases  of 
less  than  commercial  packages  for  the  several  depart- 
ments. 

Los  Angeles,  Cal.  In  this  city  the  department  of  sup- 
plies, authorized  by  charter  and  created  by  ordinance 
approved  March  27,  19 16,  purchases  everything  for  the 
city  except  articles  required  by  the  board  of  library  di- 
rectors and  articles  purchased  from  funds  derived  from 
the  sale  of  water  or  electric  power  and  city  bonds. 

Requests  for  bids  on  purchases  of  under  $500  and 
over  $25  are  required  from  at  least  three  dealers.  On 
purchases  of  $25  or  less,  the  purchasing  agent  is  au- 
thorized to  forego  the  inviting  of  competitive  bids.  Pur- 
chase orders  on  purchases  of  under  $500  are  issued  by 
the  purchasing  agent  and  submitted  to  the  supply  com- 
mittee of  the  city  council  and  the  city  auditor.  The 
supply  committee  may  disapprove  any  item  of  a  pur- 
chase. The  auditor  must  approve  each  purchase  order 
as  to  available  funds. 

For  purchases  of  over  $500,  requisitions  are  made  by 
the  several  departments  on  the  purchasing  agent,  who 
is  required  to  prepare  an  invitation  for  bids  and  to  sub- 
mit this  to  the  supply  committee  of  the  council  for  ap- 
proval. With  this  approval,  the  invitation  for  bids  is 
sent  to  the  department  requiring  the  goods  for  further 
approval  and  then  back  to  the  purchasing  agent  for  ad- 
vertisement. Bids  are  opened  in  the  presence  of  the 
purchasing  agent  and  examined  and  publicly  declared 
by  the  clerk  of  the  council  in  cases  where  the  council 
has  initiated  the  request  for  the  purchase,  or  by  the 
clerk  or  the  secretary  of  the  board  or  commission  re- 
questing the  purchase  in  cases  where  the  council  has  not 

35 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

initiated  the  action.  The  purchasing  agent  schedules 
all  bids  received  and  transmits  the  schedule  to  the  sup- 
ply committee  of  the  council,  which  recommends  to  the 
council  award  or  rejection.  Thus,  no  purchase  contracts 
of  over  $500  in  amount  are  entered  into  without  the  ap- 
proval of  the  city  council. 

Purchase  orders  on  purchases  of  both  below  and 
above  $500  are  issued  by  the  purchasing  agent.  Emer- 
gency purchases  are  made  by  the  several  departments, 
provided  that  any  one  purchase  be  not  over  $25  in 
amount,  and  that  all  such  emergency  purchases  made 
by  a  department  do  not  exceed  $100  in  any  one  month. 
All  such  emergency  purchases  must  be  reported  to  the 
purchasing  agent  within  forty-eight  hours. 

Dealers'  invoices  are  sent  in  triplicate  to  the  city  audi- 
tor, who  stamps  them  with  the  date  of  receipt  and  sends 
them  to  the  department  receiving  the  goods.  The  de- 
partment certifies  upon  the  original  invoice  to  having 
received  satisfactory  delivery  and  prepares  a  voucher 
for  payment.  Under  the  alternate  method  provided  by 
the  ordinance,  the  city  auditor  is  authorized  to  prepare 
all  vouchers  instead  of  the  department  receiving  the 
goods,  and  to  require  all  departments  to  furnish  him 
with  receiving  reports  certifying  as  to  the  receipt  of 
the  proper  quantity  and  quality.  Inspection  is  left  to 
the  several  departments. 

The  store  division  of  the  department  of  supplies  pur- 
chases from  a  rotating  fund  articles  in  common  use  by 
the  several  departments  in  quantities  sufficient  to  supply 
the  ordinary  needs  of  the  departments. 

The  mechanical  division  of  the  department  of  sup- 
plies is  created  "to  repair  automobiles,  motorcycles,  mo- 
tor trucks,  steam  fire  apparatus  and  wagons  in  use  by 
the  various  departments  of  the  city."    This  work  is  done 

36 


THE  CENTRALIZATION  OF  PURCHASING 

on  requisition  on  the  purchasing  agent  by  the  several 
departments. 

The  salvage  division  of  the  department  of  supplies 
sells  all  personal  property  no  longer  required  for  the 
use  of  the  city. 

Milwaukee,  Wis.  By  city  charter  partial  centraliza- 
tion of  purchases  for  all  city  departments  is  provided 
for  through  the  bureau  of  purchases  in  the  department 
of  public  works.  The  deputy  commissioner  of  public 
works  acts  as  the  purchasing  agent.  The  bureau  of  pur- 
chases is  directed  to  make  all  open  market  order  pur- 
chases for  the  general  city  government.  This  direction, 
however,  is  not  fully  complied  with;  in  fact,  probably 
75  per  cent  of  the  city  purchases  have  in  the  past  been 
made  by  the  departments  independently.  Thus,  by  far 
the  greater  part  of  the  city  purchasing  is  decentralized. 
The  commissioner  of  public  works  has,  however,  estab- 
lished central  stores  for  hardware,  paints,  oils,  plumb- 
ers' supplies,  soaps,  office  supplies  and  electric  supplies, 
upon  which  the  several  departments  are  authorized  to 
draw  by  requisition. 

In  191 5  Milwaukee  put  into  operation  a  plan  of  co- 
operative consolidation  of  contracts  similar  to  that  in- 
stalled the  previous  year  by  New  York  City.  Under 
this  plan  the  heads  of  the  several  cooperating  depart- 
ments, acting  as  a  central  purchasing  department,  pre- 
pare consolidated  schedules  of  quantities  required,  issue 
one  advertisement,  secure  joint  bids,  make  a  single  award 
for  each  item,  and  prepare  contracts  in  accordance 
therewith  which  represent  the  needs  of  all  departments 
concerned.  It  is  planned  at  present  by  the  city  of  Mil- 
waukee, and  appropriate  charter  amendments  are  being 
sought  to  give  this  plan  the  sanction  of  law,  to  create 
a  purchasing  department  which  shall  actually  centralize 

37 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

all  of  the  purchases  for  the  entire  city  government,  in- 
cluding the  general  city  government,  schools,  libraries, 
the  park  system  and  the  public  museum. 

St.  Louis,  Mo.  Centralization  of  purchases  is  pro- 
vided by  this  city  in  the  supply  division  of  the  depart- 
ment of  finance.  This  division  purchases  all  articles 
for  all  departments  of  the  city  with  the  exception  of  the 
materials  for  the  construction  of  public  v^orks  or  for  im- 
provements thereto,  and  with  the  exception  of  articles 
for  the  police  department  and  the  department  of  edu- 
cation. These  two  departments  are  considered  depart- 
ments of  the  state  rather  than  of  the  city.  All  purchase 
orders  are  issued  by  the  supply  division  and  followed 
up  by  it.  Inspection  of  deliveries  is  made  by  the  supply 
division,  except  that  meat  is  inspected  by  the  meat  in- 
spectors of  the  board  of  health. 

Conclusion:  Proper  Form  and  Extent  of  Centralization 
of  Purchase  in  Cities.  In  considering  the  foregoing  re- 
view of  present  practice  in  American  cities,  it  is  worthy 
of  note  that  while  some  cities,  as  New  York,  have  as  yet 
reached  only  the  point  of  consolidating  contracts  for  a 
few  departments,  and  others  have  developed,  on  paper 
at  least,  a  plan  for  the  complete  centralization  of  all 
purchase  operations,  including  the  issuance  of  purchase 
orders,  none  has  been  found  in  which  the  plan  so  widely 
used  in  industrial  corporations — that  of  central  price 
securing  and  making  of  price  agreements,  with  decen- 
tralized issue  of  purchase  orders — has  been  employed. 
Yet  such  a  plan  would  unquestionably  represent  a  dis- 
tinct advance  over  the  entirely  decentralized  systems  of 
purchase  still  in  use  in  so  many  cities,  without  at  the 
same  time  involving  the  complete  destruction  of  the  tra- 
ditional prerogatives  of  the  departments. 

38 


THE  CENTRALIZATION  OF  PURCHASING 

There  is  no  reason,  however,  why  central  purchasing 
for  cities  may  not  go  beyond  the  price-securing  function 
and  include  issuance  of  purchase  orders,  follow-up  and 
checking  of  invoices.  This  degree  of  centralization 
avoids  delay  in  the  issuance  of  orders  on  prices  specially 
secured  and  insures  their  correct  preparation  in  standard 
terms.  It  also  avoids  the  chance  that  the  several  offices 
will  undertake  to  make  supplemental  agreements  with 
dealers,  in  some  cases  perhaps  offering  opportunity  for 
favoritism  or  graft.  It  secures  a  systematic  follow-up, 
and  the  prompt  checking  and  payment  of  invoices  by  the 
office  which  has  most  direct  knowledge  of  the  impor- 
tance of  these  on  competition  and  prices,  the  central 
purchasing  office. 

Vouchering  is  best  done  by  the  central  accounting  of- 
fice on  receipt  of  an  approved  invoice  accompanied  by  a 
properly  certified  receiving  memorandum  showing  that 
the  articles  invoiced  have  been  received  in  correct  quan- 
tity and  quality. 

In  perhaps  the  majority  of  cases  where  central  pur- 
chase has  been  established,  the  department  of  education 
has  been  omitted  from  the  operations  of  the  purchasing 
department.  The  reason  for  this  is  that  education  is  in 
most  states  considered  a  matter  of  state  rather  than  of 
local  control.  Aside  from  this,  there  is  no  valid  reason 
why  educational  supplies  and  equipment  may  not  be  han- 
dled to  advantage  by  a  central  purchasing  agency.  They 
are  to  a  large  extent  standard,  and  such  of  them  as  are 
subject  to  change,  as,  for  example,  textbooks,  may,  un- 
der central  purchase,  be  just  as  much  subjected  to  the 
judgment  of  the  educational  authorities  as  though  pur- 
chased by  a  separate  purchasing  agent. 

Whatever  the  degree  of  centralization  of  purchase  de- 
termined upon,  it  is  essential  that  in  every  department 

39 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

which  requisitions  purchases  or  stores  supplies,  respon- 
sibility over  all  these  matters  be  concentrated  in  one  ca- 
pable officer.  The  functions  of  this  officer  should  extend 
over  all  matters  of  stores  control — the  determination  of 
minimum  stock  limits  and  of  consumption  limits,  the 
maintenance  of  stock,  the  inspection  of  deliveries,  the 
transfer  and  sale  of  stores  and  equipment.  He  should 
also  be  charged  with  the  issuance  of  purchase  orders  or 
of  purchase  requisitions  on  the  central  purchasing  offi- 
cer; with  the  supervision  of  all  departmental  industries 
engaged  in  the  production  or  repair  of  supplies  and  with 
the  preparation  of  the  annual  supplies  budget. 

Obviously  the  official  charged  with  the  above  respon- 
sibilities should  be  a  man  of  the  highest  ability  and 
initiative  in  all  phases  of  the  supply  problem,  and  per- 
manent in  tenure  in  order  that  his  experience  may  be 
cumulatively  valuable  to  his  department.  In  a  large 
department  with  important  supply  problems,  a  capable 
man  given  full  support  by  the  other  executives  of  the 
department  might  save  far  more  than  the  amount  of  his 
salary,  even  though  a  liberal  one,  in  almost  any  one  of 
the  fields  of  service  outlined  above. 

No  considerable  staff  should  be  necessary  for  this 
work.  The  plan  looks  merely  to  a  centralization  in  ex- 
pert hands  of  responsibilities  now  scattered  in  most  gov- 
ernmental departments  among  several  executives  often 
unable  to  give  sufficient  time  to  details  and  more  often 
lacking  in  requisite  knowledge  and  experience  in  supply 
problems.  By  elimination  of  useless  work  due  to  mis- 
takes and  lack  of  understanding  of  the  difficulties  in- 
volved, the  storekeeper  should  be  able  to  reduce  rather 
than  require  an  increase  of  forces  engaged,  both  those 
on  physical  handling  of  stores  and  those  on  clerical 
work. 

40 


THE  CENTRALIZATION  OF  PURCHASING 

Closely  related  to  the  problem  of  centralization  of 
purchase  is  that  of  central  control  over  stores  and  that 
of  central  delivery  and  storage.  It  is  believed  that  in 
cities  the  fullest  success  of  central  purchasing  is  largely 
dependent  upon  the  development  of  a  proper  degree  of 
central  control  over  stores.  As  yet  this  function  is  not 
generally  conceived  by  cities  having  central  purchase 
departments  as  requiring  central  supervision.  But  with 
the  growth  of  the  conception  of  the  unity  of  all  munici- 
pal business,  which  is  so  marked  in  cities  operating  un- 
der the  city  manager  plan,  the  development  of  central 
stores  control  may  be  expected.  From  centralization  of 
purchase  it  is  only  a  short  step  to  the  establishment  of 
control  over  the  supply  operations  of  a  city  as  a  whole 
to  such  a  degree  that  property  shall  be  conceived  of  as 
belonging  to  the  city  rather  than  to  any  one  department, 
and  as,  therefore,  being  subject  to  transfer  from  one  de- 
partment to  another. 

Coordination  of  the  work  of  the  several  departmental 
storekeepers  will  probably  best  be  secured  in  the  largest 
cities  through  a  general  storekeeper  to  have  supervision 
over  the  departmental  storekeepers  to  the  extent  neces- 
sary to  insure  that  correct  quantities  are  kept  on  hand  at 
each  store;  that  they  serve  two  or  more  departments 
where  this  is  advantageous;  that  articles  profitably  so 
furnished  be  purchased  for  storage  in  and  distribution 
from  a  central  store;  that  transfers  of  surplus  stock  or 
of  unused  property  are  made  from  one  department  to 
another,  and  that  purchase  requisitions  and  estimates 
are  made  by  the  several  departments  in  time  and  in  cor- 
rect terms  to  insure  the  fullest  success  of  the  purchas- 
ing office  in  combining  the  purchasing  power  of  all  de- 
partments and  in  avoiding  needless  duplication  of  work. 
In  smaller  cities  these  functions  of  coordination  may  be 

41 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

performed  profitably  through  the  central  purchasing  of- 
fice. In  both  large  and  small  cities  this,  as  a  matter  of 
fact,  should  be  the  case,  the  difference  being  that  in  the 
largest  cities  the  general  storekeeper  and  the  purchasing 
agent  would  be  coordinate  officials  under  a  supervisory- 
board,  while  in  a  smaller  city  the  functions  of  the  gen- 
eral storekeeper  would  be  entrusted  by  the  purchasing 
agent  to  a  subordinate  directly  under  his  control. 

On  the  other  hand,  the  need  for  central  delivery  and 
storage,  which  is  often  urged  as  a  necessary  corollary 
to  the  development  of  central  purchasing,  is  not  so  ap- 
parent. It  is  not  believed  that  central  storage  and  re- 
distribution of  supplies,  materials  and  equipment  on  a 
scale  which  contemplates  the  extension  of  this  system  to 
all  articles  purchased,  or  even  to  the  greater  part  of 
them,  will  be  found  profitable  for  cities.  The  plan  would 
involve  storage  and  distribution  facilities  of  too  great 
extent,  and  duplication  of  work  not  compensated  for  by 
lower  prices  or  by  the  somewhat  greater  control  over 
purchases  and  stores  in  some  cases  made  possible 
thereby,  nor  by  the  undoubted  aid  which  this  system 
would  give  toward  securing  uniformity  of  inspection 
standards. 

Uniformity  of  inspection  is  indeed  commonly  cited 
as  a  reason  for  the  necessity  of  central  storage  and  re- 
distribution, but  for  this  purpose  central  delivery  in  any 
case  suffices.  Even  central  delivery  is  not,  however, 
generally  necessary  for  this  purpose.  In  the  case  of 
large  purchases,  uniformity  of  inspection  may  be  se- 
cured by  inspection  at  the  source.  With  respect  to  other 
important  items  uniformity  may  readily  be  secured  by 
an  expert  traveling  inspector.  Thus,  even  in  the  city 
of  New  York,  clothing,  for  example,  is  delivered  to  but 
four  institutional  departments,  and  it  is  practicable  for 

42 


THE  CENTRALIZATION  OF  PURCHASING 

a  clothing  inspector  with  expert  assistants  to  cover  all 
deliveries  at  all  points,  if  deliveries  be  properly  sys- 
tematized. Food  supplies  are  more  difficult  to  handle 
and  more  in  need  of  central  delivery  by  reason  of  the 
fact  that  deliveries  are  necessarily  more  frequent  than 
is  the  case  with  clothing;  but  the  central  deliveries  of 
food  supplies  may  well  be  confined  to  items  on  which  in- 
spection is  difficult. 

From  all  indications  now  available  it  seems  unlikely 
that  central  delivery  and  storage  will  develop  to  any 
great  extent  for  cities.  It  seems  far  more  practicable, 
in  view  of  the  standard  nature  of  most  city  purchases, 
to  enter  into  price  agreements  whereby  dealers  shall 
agree  to  deliver  goods  as  required,  thereby  keeping  city 
storage  down  to  a  minimum.  This  is  especially  true  dur- 
ing times  of  normal  market  conditions.  Under  this  plan 
central  stores  may  be  confined  to  articles  not  easy  to 
procure  at  short  notice  under  price  agreements  or  con- 
tracts, and  to  articles  which  departments  would  other- 
wise be  compelled  to  purchase  in  broken  packages,  and 
to  .a  few  items  on  which  central  delivery  may  be  neces- 
sary to  insure  uniform  inspection. 

Many  cities  have  made  progress  towards  the  control 
over  the  elements  of  the  supply  problem  here  outlined. 
But  it  is  believed  that  cities  may  profitably  go  much 
farther  in  the  direction  here  indicated  both  in  centraliz- 
ing responsibility  for  the  supply  problem  in  each  im- 
portant department  and  in  establishing  central  service 
and  control  for  all  departments. 


CHAPTER  III 

LEGAL  RESTRICTIONS  IN  GOVERNMENT 
PURCHASING 

The  legal  restrictions  with  which  purchasing  is  com- 
monly hedged  about  in  governments  constitute  the  most 
distinctive  feature  of  government  as  opposed  to  com- 
mercial purchasing.  In  virtually  no  government  in  this 
country,  it  may  safely  be  said,  does  the  purchasing  agent 
or  officer  enjoy  that  complete  freedom  from  legal  and 
procedural  limitations  which  is  characteristic  of  the  pur- 
chasing officer  in  business  life.  With  minor  exceptions 
the  restrictions  which  exist  have  it  of  course  for  their 
purpose  to  prevent  the  abuse  or  improper  use  of  discre- 
tion by  purchasing  officers — the  conversion  of  govern- 
ment contracts  into  party  and  personal  spoils. 

To  what  extent  restrictions  of  the  kind  here  under  dis- 
cussion are  useful  and  proper,  and  to  what  extent  they 
constitute  a  burdensome  and  unnecessary  limitation 
upon  the  discretion  of  purchasing  officers  are  questions 
not  susceptible  of  exact  or  general  answers.  They  are 
moral  and  political  rather  than  technical  questions.  The 
degree  of  unlimited  discretion  which  may  properly  be 
vested  in  government  purchasing  officers  must  differ  in 
each  case,  depending  upon  the  state  of  public  opinion 
and  the  degree  to  which  a  tradition  of  honesty  and  serv- 
ice in  public  office  has  been  developed. 

In  all  phases  of  public  administration  the  methods 
which  are  employed  for  insuring  the  faithful  perform- 
ance of  duty  by  public  officers  may  be  said  to  fall  into 

44 


LEGAL  RESTRICTIONS 

two  clearly  distinguishable  classes.  One  method  seeks 
to  throw  about  the  conduct  of  the  public  officer  a  multi- 
tude of  legal  restrictions  and  prohibitions;  the  other 
seeks  to  concentrate  responsibility  and  power  in  the  pub- 
lic officer  and  to  require  only  that  he  transact  all  public 
business  in  the  fullest  light  of  publicity.  In  purchasing, 
the  former  method  has  hitherto  been  general.  But  a 
trend  in  the  other  direction  is  unmistakably  evident. 
The  experience  of  American  cities  seems  to  demonstrate 
very  clearly  that  if  responsibility  for  purchasing  be  cen- 
tralized in  a  single  officer,  the  publicity  in  which  he 
operates  will  render  unnecessary  many  of  the  restric- 
tions found  indispensable  while  purchasing  remains  a 
minor  function  of  a  multitude  of  petty  officers.  The 
recognition  of  this  simple  truth  holds  more  promise  for 
the  improvement  of  government  purchasing  methods 
than  does  the  introduction  of  numerous  refinements  of 
purchasing  technique. 

In  the  subsequent  sections  the  attempt  is  made  to  set 
forth  the  principal  types  of  legal  restrictions  on  pur- 
chasing found  in  American  cities  and  to  discuss  their 
wisdom  in  the  light  of  the  general  position  here  taken. 

Provisions  Requiring  Competition  and  Award  to  Low- 
est Bidder.  With  slight  exceptions  the  object  aimed  at 
by  the  great  variety  of  regulations  governing  purchas- 
ing to  be  found  in  the  laws,  ordinances  and  regulations 
of  American  cities  is  to  secure  free  competition  of  ven- 
dors for  city  business  and  award  of  the  contract  or  or- 
der to  the  lowest  bidder.  No  city  goes  so  far,  however, 
as  to  require  that  these  conditions  be  adhered  to  in  the 
case  of  every  purchase.  Exceptions  are  invariably  per- 
mitted— occasionally  in  the  judgment  of  the  purchasing 
officers  or  of  the  city  council,  almost  always  when  the 

45 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

amount  involved  is  too  small,  and  quite  frequently  when 
the  article  to  be  purchased  is  patented  or  is  needed  be- 
cause of  an  emergency. 

The  power  to  waive  the  legal  provisions  requiring 
competition  and  the  award  to  the  lowest  bidder  is  in 
some  cities  given  to  an  administrative  board,  known  as 
the  board  of  contract  and  supply  or  by  some  similar 
name.  Such  is  the  case,  for  example,  in  Providence, 
Rhode  Island,  where  two-thirds  of  the  members  of  this 
board,  which  consists  of  the  mayor,  the  president  of  the 
board  of  aldermen,  the  president  of  the  common  coun- 
cil, the  chairman  of  the  committee  on  city  property,  the 
chairman  of  the  board  of  police  commissioners,  the  chief 
of  the  board  of  fire  commissioners  and  the  city  auditor, 
determine  that  it  is  impracticable  to  effect  a  purchase  by 
competition.  In  other  cities  the  authority  of  the  council 
is  required.  Thus,  in  New  York  City  a  vote  of  three- 
fourths  of  the  board  of  aldermen  is  required  for  waiving 
competition,  and  a  vote  of  three- fourths  of  the  board  of 
estimate  and  apportionment  for  making  award  to  other 
than  the  lowest  bidder.  In  Chicago  a  two-thirds  vote 
of  the  board  of  aldermen  is  required  for  either  purpose. 
It  seems  clear  that  these  latter  requirements  are  ill-ad- 
vised. The  circumstances  under  which  it  becomes  ad- 
visable to  dispense  with  competition  are  generally  of  an 
emergent  nature  where  promptness  of  action  is  essential. 
Here  the  delay  incident  to  securing  the  approval  of  a 
body  which  meets  infrequently  and  is  governed  by  a 
formal  calendar  may  be  so  great  as  to  nullify  the  ad- 
vantages sought  to  be  gained  by  the  waiving  of  compe- 
tition. The  experience  of  New  York  City  with  this  pro- 
vision would  seem  to  prove  that  it  will  not  be  taken  ad- 
vantage of  except  under  extreme  conditions. 

In  almost  every  case,  as  already  stated,  a  limit  is  fixed 

46 


LEGAL  RESTRICTIONS 

below  which  competition  and  award  to  the  lowest  bidder 
are  not  required.  The  amount  most  generally  found 
in  American  cities  is  $500,  although  occasionally  lower 
amounts  are  found,  Cleveland's  charter  fixing  it  as  low 
as  $100.  In  some  of  the  large  cities,  on  the  other 
hand,  as  in  New  York  and  Minneapolis,  it  is  fixed  at 
$1,000.  St.  Louis  has  the  unique  provision  that  pur- 
chases of  not  over  $500  may  be  made  without  advertise- 
ment upon  the  written  approval  of  the  comptroller,  but 
competitive  bids  must  be  secured. 

With  respect  to  the  purchase  of  patented  articles,  a 
complete  exception  to  the  provisions  requiring  competi- 
tion is  made  in  a  number  of  cities.  In  some  cases,  how- 
ever, the  law  requires  that  even  here  competitive  condi- 
tions must  be  observed.^  In  a  few  cases,  as  in  that  of 
Cleveland,  the  failure  of  the  law  to  make  an  exception 
in  the  case  of  patented  articles  has  been  held  by  the 
courts  to  prevent  the  adoption  of  specifications  which 
require  the  exclusive  use  of  an  article  controlled  by  one 
manufacturer,  even  if  the  officers  of  the  city  believe  in 
good  faith  that  the  article  is  the  best  and  most  suitable 
for  the  purpose.  It  cannot  be  doubted  that  the  effect  of 
stringent  limitations  on  the  purchase  of  patented  arti- 
cles, such  as  that  last  cited,  goes  beyond  a  reasonable 
limit  in  the  desire  to  protect  the  city's  purchasing  proced- 
ure. It  is  unnecessary  to  point  out  that  there  are  a  num- 
ber of  patented  articles  which  the  several  operating  de- 
partments of  the  city  are  entitled  to  specify  and  that 

^  Thus  the  charter  of  New  York  City,  section  1554,  provides  that 
"except  for  repairs  ...  no  patented  article  shall  be  advertised  for, 
contracted  for  or  purchased  except  under  such  circumstances  that 
there  can  be  a  fair  and  reasonable  opportunity  for  competition,  the 
conditions  to  secure  which  shall  be  prescribed  by  the  board  of  esti- 
mate and  apportionment."  In  Holly  vs.  City  of  New  York,  128, 
appellate  division,  499,  it  was  held  that  an  unpatented  pipe  joint  even 
though  made  by  patented  machinery  is  not  a  patented  article  in  the 
meaning  of  this  section. 

47 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

legal  provisions,  which  make  it  difficult  if  not  impossible 
for  them  to  do  so,  are  bound  to  be  a  fruitful  source  of  ir- 
ritation and  evasion. 

Occasionally,  instead  of  or  in  addition  to  a  provision 
giving  to  the  council  or  other  authority  the  general 
power  to  dispense  with  competition,  there  is  found  a  pro- 
vision providing  for  such  suspension  in  case  of  emer- 
gency. Such  provisions  are  most  frequently  found  in 
those  cities  in  which  purchasing  has  been  centralized 
and  a  single  purchasing  agent  is  found.  The  authority 
to  determine  when  an  emergency  exists,  when  vested  in 
a  purchasing  agent,  is  usually  subject  to  some  superior 
control.  Thus,  in  Cleveland,  the  purchasing  agent  may 
dispense  with  competition  in  emergency  (in  the  latter 
case  only  on  purchases  up  to  $500)  but  must  make  a  re- 
port to  the  council  setting  forth  the  facts.  In  Los  An- 
geles, if  it  be  found  by  the  chairman  of  the  supply  com- 
mittee that  the  emergency  did  not  exist,  the  purchase  is 
not  binding  upon  the  city.  In  St.  Paul  it  is  provided  that 
**in  case  of  an  emergency  where  failure  to  act  promptly 
will  work  an  injury  to  the  city,  the  purchasing  agent, 
with  the  written  consent  of  the  comptroller,  and  the 
mayor,  and  the  consent  of  the  council,  may  purchase 
supplies  to  any  amount  without  advertisement  and  com- 
petitive bids."  In  Los  Angeles,  in  addition  to  the  pro- 
vision relative  to  emergency  purchases  by  the  purchas- 
ing agent,  it  is  provided  that  the  heads  of  departments 
may  make  emergency  purchases  amounting  to  not  more 
than  $25,  and  to  the  total  amount  of  not  more  than  $100 
in  any  one  month. 

Of  the  detailed  requirements  intended  to  secure  open 
and  equal  competition  of  vendors,  the  most  common  is 
that  requiring  public  advertisement  of  the  contract  to  be 
awarded.     The   provisions   calling   for   advertisement 

48 


LEGAL  RESTRICTIONS 

usually  specify  the  length  of  time  for  which  advertise- 
ment shall  be  made  and  the  mediimi  to  be  employed.  A 
wide  variation  is  found  in  respect  to  the  length  of  time 
required.  Thus,  in  Los  Angeles  it  is  merely  provided 
that  an  advertisement  shall  be  run  one  or  more  times, 
while  in  New  York  and  other  cities  a  requirement  of 
ten  days,  exclusive  of  Sundays  and  holidays,  and  occa- 
sionally even  of  two  weeks,  is  found.  In  cities  having 
an  official  paper,  publication  therein  only  is  generally 
required  by  the  law. 

Admitting  the  necessity  for  giving  publicity  to  proposed 
contracts,  it  is  to  be  questioned  whether  formal  advertise- 
ment in  a  newspaper,  especially  in  an  official  paper,  is 
the  best  means  of  securing  this  end.  Even  admitting, 
however,  that  formal  advertisement  may  well  be  re- 
tained as  one  means  to  this  end,  it  would  seem  possible 
to  shorten  the  period  of  advertisement  required  by  the 
regulations  in  many  cities  without  causing  any  loss  to 
the  city  in  respect  to  the  extent  of  competition  or  the 
prices  bid. 

At  least  where  long  periods  of  advertisement  are  re- 
quired, authority  should  exist  in  some  officer  or  body 
capable  of  prompt  action  to  shorten  the  period  in  any 
particular  case  where  the  circumstances  seem  to  de- 
mand it. 

In  some  cities  provision  is  indeed  made  for  setting 
aside  entirely  the  requirement  of  advertisement.  The 
authority  to  do  this  is  variously  hedged  about  in  differ- 
ent cities;  in  some  it  may  be  done  only  "in  emergencies;" 
in  some  only  upon  obtaining  the  consent  of  a  board  or 
coimcil;  and  in  others  it  may  be  done  by  the  purchas- 
ing agent,  with  the  proviso  that  he  make  report  to  a 
board  or  council.  Some  provision  of  this  kind  is  un- 
doubtedly greatly  to  be  desired.     In  this  connection  it 

49 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

is  essential  to  remember  that  the  delays  necessitated  by 
the  formal  calendars  of  councils  or  other  bodies  often 
make  appeal  to  them  impracticable. 

As  with  so  many  other  features  of  government  pur- 
chasing, the  need  for  advertisement  depends  very  largely 
upon  the  degree  of  centralization  of  purchase  obtain- 
ing. If  responsibility  for  purchasing  be  concentrated 
in  one  office,  where  dealers  may  find  information  with 
reference  to  all  the  purchase  requirements  of  the  gov- 
ernment, effective  competition  is  almost  certain  to  be 
secured  even  in  the  absence  of  all  advertising. 

In  a  few  cases  provisions  are  found  which  attempt 
to  prescribe  the  form  in  which  proposals  shall  be  ad- 
vertised with  a  view  to  still  further  insuring  equality 
of  competition.  Thus,  in  Minneapolis  it  is  provided 
that  in  advertisements  of  proposed  purchases  of  over 
$1,000,  there  shall  be  stated  the  quality  and  kind  of  ar- 
ticles required  and  what  classes  of  articles  may  be  bid 
upon  separately ;  while  in  St.  Louis  the  charter  provides 
that  all  advertisements  for  proposals  shall  be  framed  on 
standard  specifications.  The  requirement  is  fairly  com- 
mon that  "precise  specifications"  shall  be  used  in  calling 
for  bids.  Such  a  provision  if  literally  insisted  upon 
constitutes  a  very  serious  limitation  on  the  discretion  of 
the  purchasing  agent,  as  it  prevents  him  from  stating 
his  needs  in  general  terms  and  making  his  selections 
from  samples  submitted  with  bids. 

The  excessive  care  taken  by  the  framers  of  charters 
or  ordinances  in  certain  cities  to  insure  fairness  of  com- 
petition is  evidenced  in  a  provision  not  infrequently 
found,  which  requires  that  no  bid  shall  be  received  which 
does  not  correspond  exactly  with  the  proposal.  Where 
the  law  also  requires  that  the  award  be  made  to  the  low- 
est bidder,  this  provision  is  doubtless  wise,  as  only  by 

SO 


LEGAL  RESTRICTIONS 

the  rejection  of  such  bids  are  all  the  bidders  placed 
upon  an  equality.  In  those  cities,  however,  in  which 
award  to  the  lowest  bidder  is  not  mandatory,  provision 
being  made  for  the  consideration  of  other  elements  than 
price,  this  provision  would  seem  unnecessary. 

It  need  hardly  be  said  that  of  all  legal  provisions  reg- 
ulating purchase  procedure,  those  requiring  the  award 
of  the  contract  or  order  to  the  lowest  bidder  constitute 
the  sharpest  infringement  upon  the  discretion  of  the 
purchasing  agent.  So  severe  a  limitation  is  it  indeed, 
not  merely  upon  the  prerogatives  of  the  purchasing  of- 
ficer, but  upon  the  rights  of  the  city  itself,  that  in  no 
case  is  this  provision  made  so  mandatory  as  to  vest  an 
enforceable  right  in  the  lowest  bidder.  Provision  is  al- 
most invariably  made  by  which  the  awarding  officers 
are  authorized  to  reject  all  bids. 

Almost  invariably,  too,  there  is  to  be  found  a  pro- 
vision giving  to  the  awarding  officers  the  right,  and 
making  it  in  many  cases  their  duty,  to  reject  bids  sub- 
mitted by  those  in  default  on  any  obligation  to  the  city. 
There  is  much  variation,  however,  as  to  what  is  regarded 
as  a  default  under  the  several  provisions  in  question. 
Thus,  under  the  New  York  City  charter  any  such  per- 
son is  barred  who  "is  in  arrears  to  the  city  of  New  York 
upon  any  debt  or  contract,  or  who  is  a  defaulter  as 
surety  or  otherwise  upon  any  obligation  to  the  city." 
The  second  class  cities  law  of  New  York  State  excludes, 
in  addition  to  this  class  of  persons,  one  "who  has  refused 
or  neglected  to  execute  any  contract  awarded  to  him."  ^ 
The  city  of  Baltimore  goes  further  and  excludes  any 
one  who  is  conclusively  shown  to  have  failed  to  perform 

^  The  St.  Paul  charter  makes  a  substantially  similar  provision  but 
the  rejection  here  is  made  by  the  purchasing  agent  with  the  consent 
of  the  mayor. 

51 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

satisfactorily  a  previous  contract  or  agreement  with  the 
city. 

It  seems  unquestionable  that  the  broad  interpretation 
given  to  the  idea  of  defaulting  by  the  Baltimore  pro- 
vision is  better  calculated  to  subserve  the  interests  of 
good  purchasing  than  is  the  limited  and  technical  mean- 
ing elsewhere  attached  to  it.  In  such  jurisdictions  as 
New  York  City,  where  the  latter  view  obtains,  it  has 
been  possible  for  vendors  by  a  mere  technicality,  such 
as  a  change  of  name,  to  evade  the  effect  of  the  provision 
even  to  the  extent  that  it  does  apply ;  while  on  the  other 
hand,  vendors  who  have  repeatedly  failed  satisfactorily 
to  perform  their  contract  to  the  city,  without  at  the 
same  time  being  technically  in  default,  have  succeeded 
in  again  securing  contracts,  the  awarding  officers  hav- 
ing the  option  either  of  awarding  to  them  or  of  rejecting 
all  bids  and  readvertising — a  procedure  involving  ex- 
pense and  delay. 

In  a  few  cities  the  power  of  the  awarding  officers  to 
pass  over  the  lowest  bidder  has  been  extended  to  cover 
not  merely  those  cases  in  which  the  bidder  has  proved 
unsatisfactory  in  previous  dealings  with  the  city,  but 
those  in  which  his  general  business  reputation  is  unsat- 
isfactory. Thus,  in  several  cities  the  provision  is  found 
that  an  award  must  be  made  to  the  lowest  responsible 
bidder,  and  in  some  cities  to  the  lowest  regular  responsi- 
ble bidder.  There  would  seem  to  be  no  question  as  to 
the  wisdom  of  such  a  provision.  In  its  absence  cities 
may  be  required,  and  frequently  have  been,  to  award  im- 
portant contracts  to  vendors  who  are  known  to  the 
awarding  officers  at  the  time  to  be  of  such  financial- 
standing  as  to  make  extremely  doubtful  their  ability  to 
carry  through  the  contract. 

In  a  few  cities  the  principle  has  been  recognized  that 


LEGAL  RESTRICTIONS 

general  business  reputation  and  standing  are  factors 
that  may  properly  be  taken  into  consideration  equally 
with  price  in  a  determination  of  awards.  In  such  cities 
provision  is  generally  found  that  an  award  shall  be  made 
to  the  "lowest  and  best  bidder."  Such  a  provision  may 
be  found,  for  example,  in  both  Cleveland  and  Cincin- 
nati. These  provisions  confer  so  wide  a  latitude  upon 
the  awarding  officers  that  they  may  be  regarded  as  di- 
rectory rather  than  mandatory  in  character.  Given  ef- 
ficient purchasing  officers  and  a  proper  degree  of  public- 
ity, such  provisions  are  without  doubt  calculated  to 
serve  the  city's  best  interests  as  a  purchaser. 

The  whole  question  of  the  wisdom  of  provisions  aimed 
to  insure  the  award  of  contracts  to  the  lowest  or  to  the 
lowest  responsible  bidder  is  closely  bound  up  with  the 
question  of  the  practicability  of  drafting  in  advance  of 
the  receipt  of  bids  so  precise  a  specification  as  to  make 
unnecessary  any  selection  among  the  bidders  on  the 
merit  of  their  offerings.  Obviously  the  practicability 
of  doing  this  varies  greatly  with  different  articles. 
With  respect  to  some  it  is  so  difficult  that  a  denial  to 
the  purchasing  officers  of  all  right  to  exercise  their 
judgment  as  to  the  article  best  suited  to  meet  a  par- 
ticular need,  after  comparison  of  samples  submitted 
with  bids,  is  not  only  unfair  to  them  but  too  often  ef- 
fectually closes  the  door  to  real  competition  by  com- 
pelling them  to  adopt,  before  inviting  bids,  precise  spe- 
cifications which  must  mean  but  one  article. 

Provisions  Excluding  Public  Officers  from  Participa- 
tion in  Government  Contracts.  Provisions  aiming  to 
exclude  public  officers  and  employees  from  any  private 
participation  in  purchasing  transactions  with  the  gov- 
,  ernment  are  found  virtually  universally  in  the  laws  and 

53 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ordinances  governing  purchasing  matters.  The  phras- 
ing of  such  provisions  varies  considerably,  but  it  usually 
aims  to  include  all  officers  and  employees  of  whatever 
grade  or  class.  Usually,  too,  every  possible  variety  of 
interest,  whether  direct  or  indirect,  is  forbidden;  but 
occasionally,  as  in  the  New  York  State  second  class  cit- 
ies law,  a  specific  exception  is  made  of  the  interest  which 
a  stockholder  or  director  has  in  a  corporation — an  ex- 
ception which  would  seem  to  afford  a  large  opportunity 
for  practices  which  the  statute  evidently  intended  to 
stop. 

Violation  of  provisions  of  this  type  is  in  some  cases 
made  punishable  by  fine,  or  by  forfeiture  by  the  offender 
of  his  office  or  employment.  Generally,  too,  it  is  pro- 
vided that  contracts  made  in  violation  of  these  provi- 
sions are  void,  or  voidable  in  the  discretion  of  some  of- 
ficer of  the  city  (as,  in  New  York  City,  the  comptrol- 
ler). The  latter  provision  would  seem  the  better  one 
as  it  enables  the  government  to  preserve,  if  it  chooses, 
the  advantages  which  the  contract  may  embody. 

While  provisions  of  the  type  under  discussion  are,  as 
stated,  found  almost  universally,  it  has  been  urged  by 
some  that  so  long  as  contracts  are  awarded  by  open 
competition,  there  is  no  reason  for  prohibiting  public 
officers  or  employees  from  being  interested  in  them. 
The  merit  of  this  contention  would  seem,  however, 
more  apparent  than  real.  It  is  essential  to  keep  in  mind 
that  government  officers  and  employees  are  often  in  a 
position  to  influence  the  formation  of  specifications  and 
delivery  conditions  in  such  ways  that  no  real  competi- 
tion is  possible,  in  spite  of  a  semblance  of  opportunity 
therefor.  There  are  literally  hundreds  of  ways  in 
which  competition  may  be  stifled  by  a  dishonest  pur- 
chasing agent  or  other  official  while  apparently  meet- 

54 


LEGAL  RESTRICTIONS 

ing  all  of  the  requirements  of  the  law  and  administra- 
tive regulations. 

Requirements  Designed  to  Insure  Fidelity  and  Good 
Faith  of  Vendors.  The  legal  codes  controlling  govern- 
ment purchasing  methods  very  generally  make  provision 
for  a  high  degree  of  formality  in  the  transaction  of 
purchasing  business.  These  provisions  are  but  a  nat- 
ural consequence  of  those  which  require  the  award  of 
contracts  to  the  lowest  or  lowest  responsible  bidder. 
Where  the  government  is  not  free  to  reject  any  vendor 
upon  whom  it  is  not  certain  that  it  can  rely,  and  when  it 
cannot  hold  over  the  vendor  the  threat  of  exclusion 
from  future  competition  if  he  fails  to  live  up  to  his 
agreement,  it  obviously  becomes  necessary  to  resort  to 
legal  formalities  to  insure  fidelity  and  good  faith  on  the 
part  of  the  vendor. 

In  many  cities  this  type  of  legal  formality  begins 
even  with  the  bidding  process,  bidders  being  required  to 
furnish  with  their  bids  a  so-called  security  deposit. 
This  generally  takes  the  form  of  a  certified  check,  vary- 
ing from  i^  to  lo  per  cent  of  the  amount  bid,  which  is 
forfeited  by  the  successful  bidder  should  he  fail  to  enter 
into  a  contract  within  a  given  time  after  notice  of  the 
award.  Occasionally  a  bond  running  as  high  as  50  per 
cent  is  required  with  bids. 

The  purpose  of  requirements  of  this  type  is  of  course 
to  insure  good  faith  on  the  part  of  all  bidders;  but  it 
is  not  clear  why  the  failure  of  the  successful  bidder  to 
enter  into  the  contract  need  in  the  nature  of  the  case  be 
so  carefully  guarded  against.  Such  a  default  on  the 
part  of  the  bidder  becomes  of  importance  only  when 
there  exists  a  requirement  which  makes  necessary  a  re- 
advertisement  of  the  proposals  in  such  case.    If  this  re- 

55 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

quirement,  which  has  no  substantial  reasons  to  recom- 
mend it,  be  eliminated,  the  requirement  of  a  security- 
deposit  may  also  safely  be  dispensed  with. 

In  any  event,  the  requirement  of  large  security  de- 
posits obviously  tends  to  restrict  competition  and  it 
would,  therefore,  seem  desirable  that  the  amount  re- 
quired should  be  fixed  in  accordance  with  the  require- 
ments of  each  particular  case  by  the  purchasing  agent 
or  by  an  advisory  board  qualified  by  experience  to  weigh 
the  circumstances.  It  would  also  seem  well  to  author- 
ize the  purchasing  agent  or  advisory  board  to  substi- 
tute a  bid  bond  for  the  other  forms  of  security  deposit 
generally  required  by  law. 

Where  contracts  are  entered  into  after  advertisement 
and  the  formal  receipt  of  bids,  it  is  generally  required 
that  they  be  in  writing,  and  occasionally  this  require- 
ment is  made  even  as  to  purchases  made  without  for- 
mal advertisement  and  bidding.  An  important  reason 
for  this  requirement,  in  addition  to  the  necessity  of  hold- 
ing the  vendor  strictly  to  his  agreement,  is  the  desire 
to  prevent  any  official  from  modifying  the  terms  of  a 
purchase  agreement  after  it  has  been  entered  into,  thus, 
in  effect,  possibly  nullifying  all  the  advantages  of  com- 
petition. 

As  a  rule,  contracts  of  this  character  are  drawn  in 
every  respect  in  the  interest  of  the  government  as 
against  the  vendor,  and  this  fact,  together  with  the  for- 
malities generally  involved  in  the  execution  of  such  a 
contract,  tends  to  discourage  competition  and  to  ex- 
clude desirable  dealers  as  well  as  unreliable  ones. 

It  may  be  seriously  questioned  whether  in  the  long 
run  the  well-nigh  invariable  use  of  formal  contracts  for 
large  purchases,  now  so  common  in  cities,  is  justified 
by  the  results  obtained.     Particularly  is  this  true  with 

56 


LEGAL  RESTRICTIONS 

respect  to  articles  susceptible  of  immediate  test  on 
which  immediate  delivery  is  called  for.  In  any  case, 
however,  it  is  difficult  to  see  why  equally  satisfactory 
results  could  not  generally  be  secured  by  the  use  of  pur- 
chase agreements  of  an  informal  yet  wholly  precise  and 
definitive  character,  of  a  type  so  generally  found  in  com- 
mercial practice.  If  responsibility  for  purchasing  be 
properly  centralized,  it  may  well  be  left  to  the  responsi- 
ble purchasing  agent  (or  to  a  board  from  which  he  can 
get  a  quick  decision)  to  decide  in  what  cases  formal 
contracts  must  be  used  and  in  what  cases  they  may  be 
dispensed  with. 

Not  only  are  formal  contracts  commonly  required  in 
government  purchasing,  but  the  requirement  is  gener- 
ally added  that  a  bond  be  filed  upon  the  signing  of  the 
contract  for  the  faithful  performance  of  the  agreement. 
The  amount  of  such  bonds  varies  from  25  to  100  per 
cent  of  the  amount  of  the  contract.  In  a  few  cities  a 
certified  check  for  25  per  cent  of  the  amount  of  the 
contract  is  accepted  as  surety  in  place  of  a  bond  for 
a  larger  amount. 

The  necessity  for  the  universal  requirement  of  heavy 
contract  bonds,  like  the  necessity  for  formal  contracts 
themselves,  follows  from  the  lack  of  discretion  en- 
trusted to  purchasing  agent  or  board  in  the  selection 
of  bidders.  It  goes  without  saying  that  where  such  dis- 
cretion exists  contract  bonds  may  be  dispensed  with  in 
a  great  proportion  of  the  cases  where  they  are  now  re- 
quired. 

As  in  the  case  of  security  deposits,  it  is  believed  that 
it  is  better  to  permit  the  purchasing  agent  or  an  advis- 
ory board  to  exercise  discretion  as  to  the  amount  of  the 
bond  to  be  required  in  each  particular  case  than  to  es- 
tablish a  fixed  percentage  for  all  cases. 

57 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

Restrictions  Arising  Out  of  Availability  of  Appropri- 
ations. Charters  and  ordinances  quite  generally  pro- 
vide that  purchasing  officers  shall  enter  into  no  contract 
for  purchases  for  the  payment  of  which  there  does  not, 
at  the  time  of  making,  exist  a  sufficient  appropriation. 
The  effect  of  such  provision  is  of  course  to  prohibit  the 
making  of  contracts  contemplating  any  period  of  de- 
livery extending  substantially  beyond  the  current  fiscal 
year,  no  matter  how  far  advanced  that  year  may  be. 
The  enforcement  of  this  provision  is  frequently  secured 
by  the  provision  that  no  contract  shall  be  binding  unless 
the  proper  financial  officer  shall  certify  in  advance  that 
the  money  required  for  its  payment  is  in  the  treasury 
to  the  credit  of  the  proper  fund. 

The  important  effect  of  such  restrictions  as  these  is 
substantially  to  prevent  the  government  purchasing 
agent  from  entering  into  long-time  purchase  agreements. 
That  such  agreements  are  with  respect  to  many  cur- 
rently used  articles  highly  desirable  and  profitable,  is 
certain,  and  it  is  not  clear  that  any  confusion  or  im- 
pairment would  result  in  the  regular  budgetary  or  finan- 
cial procedures  of  cities  if  these  restrictions  were  so 
modified  as  to  permit  of  such  agreements. 

Restrictions  Relating  to  Labor  Conditions.  Provisions 
restricting  the  number  of  hours  of  labor  and  in  some 
cases  the  minimum  wage  to  be  paid  in  the  execution  of 
government  contracts,  whether  for  construction  or  for 
manufacture,  are  fairly  common.  The  necessity  and 
desirability  of  such  restrictions  is  not  to  be  questioned. 
It  is  interesting  to  note,  however,  that  in  England  an  ad- 
ministrative rather  than  a  legislative  method  of  deter- 
mining proper  conditions  of  labor  on  government  con- 
tracts is  employed.     The  fair  wage  act  requires  that 

58 


LEGAL  RESTRICTIONS 

before  any  contract  is  entered  into  the  administrative 
officer  concerned  shall  investigate  the  hours  of  labor  un- 
der which  the  employees  of  the  several  bidders  work,  as 
well  as  the  fairness  of  their  wages  and  the  general  con- 
ditions of  employment.  It  is  the  practice  in  both  the 
central  purchasing  office  of  the  London  County  Coun- 
cil and  in  the  stationery  office,  which  purchases  station- 
ery and  arranges  printing  contracts  for  all  of  the  de- 
partments of  the  Imperial  Government,  to  investigate 
prospective  bidders  even  before  bids  have  been  invited. 
Bidders  are  excluded  from  competition  or  their  bids 
are  rejected  if  it  is  found  from  this  investigation  that 
their  hours  of  labor  are  too  long,  their  working  condi- 
tions bad  or  their  wages  unfair. 

It  is  to  be  questioned  whether  such  provisions  as  these 
do  not  secure  more  effectually  the  results  sought  than 
do  the  rigid  restrictions  in  common  American  practice. 

Summary:  Authority  Properly  Vested  in  Purchasing 
Agent.  At  the  beginning  of  this  chapter  it  was  pointed 
out  that  no  categorical  answer  can  be  made  to  the  ques- 
tion as  to  what  degree  of  discretion  may  properly  be 
vested  in  the  government  purchasing  agent.  It  is  there 
pointed  out  that  the  solution  of  this  problem  is  closely 
bound  up  with  the  general  state  of  political  morality  ob- 
taining in  the  government  in  question;  and  it  was  fur- 
ther pointed  out  that  only  if  responsibility  for  purchas- 
ing were  centralized  and  a  proper  degree  of  publicity 
were  brought  to  bear  upon  the  centralized  purchasing 
office  would  it  be  safe  to  remove  in  any  large  measure 
the  legal  restrictions  on  government  purchasing  which 
have  hitherto  been  found  necessary. 

If  this  view  be  correct,  it  will  be  of  value  now  to  sum- 
marize, in  the  light  of  the  discussion  of  the  several  dis- 

59 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tinct  types  of  restrictions  on  government  purchasing 
above  presented,  the  nature  of  the  authority  which  may 
properly  be  entrusted  to  the  government  purchasing 
agent. 

With  a  central  purchasing  office  supervised  by  a  board 
responsible  for  making  periodic  inspections  of  purchas- 
ing transactions,  for  deciding  the  most  important  ques- 
tions of  policy,  and  for  arbitrating  controversies  be- 
tween the  purchasing  office  and  dealers,  there  is  no  rea- 
son why  American  cities  may  not  be  free  to  adopt  most 
of  the  desirable  purchasing  methods  of  private  corpora- 
tions. The  central  purchasing  office  may  accomplish 
this  result  to  a  large  degree  by  centralizing  merely  the 
price-securing  function,  permitting  the  several  depart- 
ments and  offices  to  issue  purchase  orders,  etc.  Whether 
centralization  go  only  this  far  or  include  the  other  phases 
of  purchasing,  it  should  be  possible  to  secure  freedom 
to  exercise  discretion  in  adapting  method  to  conditions 
in  the  following  respects : 

I.  While  working  under  the  general  rule  that  com- 
petition be  secured  on  all  purchases,  it  should  be  pos- 
sible for  the  purchasing  office  to  use  the  method  of  stim- 
ulating competition  which  is  best  under  each  set  of  con- 
ditions. All  purchase  requirements  should  be  made 
public  by  the  bulletin  board  method  and  by  supplemen- 
tal information  furnished  to  whoever  desires  it.  But 
it  should  be  within  the  discretion  of  the  purchasing 
agent  and  his  specialists  to — 

a.  Purchase  small  amounts  (below  $50  or  $25) 
without  competition  in  emergencies  requiring  immediate 
action,  at  once  publicly  announcing  such  purchases  on 
the  bulletin  board  and  reporting  them  to  the  supervis- 
ory board  with  a  statement  of  the  emergency. 

60 


LEGAL  RESTRICTIONS 

b.  Purchase  to  any  amount  without  competition 
in  emergencies  requiring  immediate  action,  or  when 
competition  could  bring  no  beneficial  results  (as  in  case 
of  a  patented  or  proprietary  article  universally  sold  at 
a  standard  price)  after  securing  the  written  consent  of 
the  supervisory  board  or  a  majority  of  its  members; 
when  circumstances  do  not  admit  of  securing  this  con- 
sent the  purchase  should  be  made  and  immediately  re- 
ported to  the  board  with  the  reason  for  not  securing  its 
prior  consent.  In  all  cases  such  purchases  should  be 
at  once  publicly  announced  on  the  bulletin  board. 

c.  To  decide  in  what  cases  it  is  advisable  to  stimu- 
late competition  by  public  advertisement  for  a  period  and 
in  what  cases  public  advertisement  would  be  a  loss  of 
valuable  time  and  decrease  the  likelihood  of  securing 
favorable  prices.  The  rule  that  all  purchases  above  a 
stated  amount — $250,  $500  or  $1,000 — must  be  adver- 
tised for  a  period  should  be  retained  as  a  general  rule, 
but  it  should  be  readily  dispensed  with  after  securing 
the  consent  of  the  supervisory  board  or  in  cases  of  emer- 
gency without  this  prior  consent,  the  purchasing  agent 
in  such  cases  reporting  the  purchase  to  the  board  with 
an  explanation  of  the  reason  for  dispensing  with  the  ad- 
vertisement. It  should  also  be  within  the  discretion  of 
the  purchasing  agent  to  determine  the  period  of  adver- 
tisement with  the  prior  consent  of  the  supervisory  board 
or  without  it  in  emergencies ;  this  is  necessary  since  ad- 
vertisement for  a  brief  period  may  in  many  cases  be 
the  most  effective  means  of  securing  competition.  Fur- 
ther, he  should  have  authority  to  make  use  of  other 
mediums  of  advertisement  than  officially  designated 
papers. 

d.  To  decide  what  other  means  than  advertise- 
ment are  best  for  securing  publicity  of  purchase  needs 

61 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

and  for  extending  competition ;  in  all  cases  timely  bulle- 
tin board  announcement  to  be  made,  and  the  extent  of 
competition  to  be  systematically  made  the  subject  of  ad- 
ministrative review  by  the  supervisory  board  and  to  be 
open  to  public  inspection.  This  latter  requirement  is 
necessary  by  reason  of  the  public  nature  of  government 
business.  If  in  some  cases  it  fosters  the  development 
of  combinations  among  bidders  to  exclude  competition^ 
this  condition  must  be  met  by  other  means. 

e.  To  decide  in  what  cases  it  is  necessary  to  pur- 
chase a  patented  or  proprietary  article  on  which  it  is  not 
possible  to  secure  competition.  The  provision  of  New 
York  City's  charter  forbidding  the  purchase  of  a  pat- 
ented article  "except  under  such  circumstances  that 
there  can  be  a  fair  and  reasonable  opportunity  for  com- 
petition" only  drives  public  officers  to  the  subterfuge  of 
devising  specifications  which,  while  expressed  in  gen- 
eral terms,  exclude  competition  on  all  articles  except 
the  one  which  they  know  is  best  for  their  purposes ;  this 
is  inevitable  under  the  further  provision  of  the  charter 
that  award  must  be  made  to  the  lowest  bidder.  Such  a 
provision  as  this  is  entirely  without  purpose  if  the  gen- 
eral principle  be  adopted  by  the  purchasing  office  and 
enforced  by  the  supervisory  board  that  awards  be  made 
only  on  the  basis  of  the  best  article  for  each  use,  price 
and  delivery  conditions  being  equal. 

f.  To  decide  in  what  cases  it  is  best  to  limit  bid- 
ding to  a  ''precise  specification"  and  in  what  cases  it 
is  better  to  state  needs  in  general  terms  and  to  select  the 
best  article  from  samples  submitted  with  bids.  As  a 
matter  of  fact  any  purchasing  agent  well  knows  that 
the  requirement  of  many  charters  that  purchases  be 

made  on  "precise  specifications"  cannot  be  fully  com- 

62 


LEGAL  RESTRICTIONS 

plied  with  and  still  retain  efficiency  and  entire  honesty 
in  all  purchase  transactions. 

2.  It  should  be  possible  for  the  responsible  purchas- 
ing office,  working  under  full  publicity  and  subject  to  a 
supervisory  board,  to  adopt  any  of  the  devices  found 
profitable  by  private  corporations  for  covering  purchase 
needs  by  sources  of  supply  and  prices,  i.  e., 

a.  To  purchase  specific  quantities  from  time  to 
time  as  required,  renewing  competition  and  securing 
new  prices  on  each  occasion. 

b.  To  reduce  the  work  of  the  purchasing  office 
and  secure  the  advantage  of  competition  on  larger 
quantities  by  calling  for  informal  quotations  on  a  sched- 
ule of  articles  at  stated  intervals,  monthly,  quarterly, 
etc.,  depending  upon  market  conditions. 

c.  To  cover  purchase  requirements  by  continu- 
ing agreements  of  varying  terms  and  periods,  depend- 
ing upon  requirements  and  upon  market  conditions. 

d.  To  cover  purchase  requirements  by  formal 
contracts  protected  by  bond  and  by  rigid  contract  terms 
only  when  these  are  necessary.  It  should  be  part  of 
the  responsibility  of  the  supervisory  board  to  decide  in 
what  cases  a  formal  contract  is  needed  to  properly  pro- 
tect the  government,  dispensing  with  it  in  all  other  cases, 
as  when  delivery  is  immediate  and  inspection  simple. 
The  general  requirement  of  a  formal  contract  on  all 
purchases  above  a  stated  amount  with  security  depos- 
its to  accompany  bids,  contract  bonds,  provision  for  liq- 
uidated damages,  etc.,  is  one  of  the  most  useless  types 
of  restriction  upon  responsible  public  officers. 

e.  To  determine  the  amount  and  form  of  secur- 
ity deposits  with  bids  and  of  contract  bonds. 

f.  To  decide  the  season  at  which  to  contract  for 
each  class  of  articles.     The  requirements  of  marry  Id^vs, 

63 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

of  city  charters  and  of  regulations  of  administrative 
boards,  such^as  boards  of  education,  that  a  Hst  of  arti- 
cles required  by  the  government  for  use  during  a  stated 
period  (usually  a  fiscal  year)  shall  be  advertised  and 
contracts  awarded  to  cover  the  supply  of  all  articles 
thereon  during  the  period,  utterly  neglect  the  first  prin- 
ciple of  efficient  purchasing,  that  time  of  purchase  and 
period  of  agreement  must  vary  with  market  conditions, 
g.  To  decide  whether  purchase  agreements  and 
formal  contracts  shall  be  for  definite  quantities  of  arti- 
cles, for  "requirements,"  for  requirements  up  to  a  maxi- 
mum or  above  a  minimum,  or  for  requirements  between 
a  minimum  and  maximum. 

h.  To  decide  whether  purchase  agreements  and 
formal  contracts  shall  be  at  a  fixed  price  or  at  prices 
which  shall  vary  with  market  conditions. 

i.  To  call  for  bids  on  individual  items  or  on 
classes  of  items  as  may  be  deemed  best  under  each  set  of 
circumstances. 

3.  It  should  be  possible  for  the  responsible  purchas- 
ing office  to  make  award  to  the  bidder  whose  bid  is  the 
best,  article,  price,  delivery  conditions,  etc.,  being  con- 
sidered. The  requirement  that  award  be  made  to  the 
"lowest  bidder"  is  admirable  as  a  general  principle,  but 
results  in  inefficient  purchasing  and  in  unfairness  to 
dealers  bidding  in  good  faith  if  applied  strictly  to  all 
circumstances.  The  results  are  not  improved  when 
permission  to  depart  from  this  rule  must  be  obtained 
from  a  legislative  body  or  administrative  or  financial 
board  which  must  subject  its  decision  to  the  exigencies 
of  a  busy  calendar. 

The  purchasing  agent  should  be  authorized  to  make 
awards  on  purchases  of  all  amounts  to  the  "best"  bid- 
der, in  all  cases  where  possible,  without  causing  delay, 

64 


LEGAL  RESTRICTIONS 

securing  the  prior  consent  of  the  supervisory  board  if 
his  selection  be  of  other  than  the  lowest  bidder.  In  all 
cases  of  such  awards  the  reason  should  be  submitted 
to  the  supervisory  board  and  all  bids  should  be  open  to 
public  inspection. 

The  requirement  that  award  be  made  to  the  lowest 
bidder  especially  obstructs  efficiency  when  it  is  carried 
to  the  extreme  of  compelling  a  readvertisement  for  bids 
in  case  the  lowest  bidder  refuses  to  enter  into  a  con- 
tract, and  all  the  more  so  when  the  government  may  not 
declare  such  lowest  bidder  a  defaulter  and  exclude  him 
from  competition  at  the  second  opening. 

The  bidder  who  bids  in  good  faith  is  entitled  to  every 
consideration  in  preference  to  the  bidder  whose  price 
is  lower  but  who  expects  or  hopes  to  deliver  an  inferior 
article,  or  who  by  reason  of  inadequate  financial  back- 
ing or  equipment,  or  poor  business  habits  is  sure  to 
cause  trouble  on  deliveries. 

The  requirement  of  award  to  the  lowest  bidder  works 
as  a  hindrance  to  an  otherwise  efficient  purchasing  of- 
fice and  as  a  help  to  tricky  dealers.  It  is  a  useless  re- 
striction when  all  purchasing  transactions,  concentrated 
in  a  responsible  office,  are  exposed  to  public  inspection 
and  to  the  review  of  a  supervisory  board. 

4.  The  purchasing  agents  with  the  consent  of  the  su- 
pervisory board  should  have  authority  to  waive  tech- 
nical defects  in  bids  and  to  make  awards  on  the  merits 
of  offerings.  Obviously  this  authority  should  not  ex- 
tend to  the  point  of  permitting  bids  to  be  made  under 
more  favorable  conditions  than  those  required  of  all 
dealers;  no  dealer  should,  for  example,  be  permitted  to 
put  in  a  bid  after  a  stated  hour  for  closing  bids,  nor  to 
omit  security  deposit  when  this  is  called  for  by  instruc- 
tions to  bidders.     It  is  a  simple  matter  to  draw  the  line 

65 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

between  those  technicalities  which  affect  the  fairness 
of  bids,  and  those  which  are  called  for  merely  to  facil- 
itate the  work  of  the  purchasing  office.  This  the  su- 
pervisory board  should  do  and  thereby  both  protect  deal- 
ers who  act  in  good  faith  and  secure  the  advantage  to 
the  government  of  the  most  favorable  bids. 

5.  If  authority  be  vested  in  a  purchasing  agent,  with 
the  approval  of  a  supervisory  board,  to  cover  purchase 
^'requirements"  by  price  agreements  or  formal  contracts 
for  indefinite  quantities,  and  there  be  granted  further 
authority  to  extend  such  agreements  or  contracts  be- 
yond the  period  of  a  fiscal  year,  the  purchasing  office  is 
in  a  position  to  secure  the  advantage  of  most  favorable 
prices  for  all  seasons,  and  the  necessity  is  avoided  of 
going  into  the  market  at  unfavorable  seasons  merely  be- 
cause an  appropriation  has  become  exhausted  or  has  ex- 
pired by  limitation  of  time.  This  authority  should  be 
granted  for  use  in  the  purchase  of  all  standard  supplies 
for  which  the  needs  of  the  government  are  certain  and 
fairly  constant,  for  example,  food  supplies  for  institu- 
tions, forage,  fuel,  gasoline.  The  further  authority 
should  be  granted  of  contracting  for  the  delivery  be- 
yond an  appropriation  period  of  definite  quantities  of 
such  standard  articles,  when  this  method  of  purchase 
will  secure  best  results;  such  contracts  to  be  encum- 
brances against  the  new  appropriations  when,  they  shall 
be  made.  In  short,  the  provision  of  New  York  City's 
charter  authorizing  contracts  for  coal  beyond  the  period 
of  a  fiscal  year  should  be  extended  to  cover  all  stand- 
ard supplies  for  which  it  is  obvious  that  appropriations 
must  be  made. 


PART   II 

PURCHASING  METHODS 


CHAPTER  IV 

THE  PURCHASING  PROCESS  OUTLINED 

In  the  present  chapter  the  attempt  is  made  to  present 
in  outline  the  various  phases  of  the  purchasing  process, 
the  fuller  discussion  of  which  is  developed  in  the  sub- 
sequent chapters.  In  outline  the  purchasing  process 
may  be  said  to  involve  the  following : 

1.  Determination  of  purchase  requirements. 

2.  Determination  of  current  market  conditions 
and  tendencies. 

3.  Determination  of  the  elements  essential  to  se- 
curing the  fullest  competition. 

4.  Development  of  specifications,  clearly  and  defi- 
nitely stating  purchase  needs. 

5.  Determining  the  method  of  inviting  bids  best 
adapted  both  to  the  needs  of  the  service  and  to 
those  of  dealers  from  whom  competition  must 
be  sought. 

6.  Determining  the  form  of  purchase  agreement. 

7.  Stimulating  competition  on  invitations  for  bids. 

8.  Making  awards. 

9.  Follow-up. 

10.  Inspection. 

11.  The  handling  of  invoices  and  securing  prompt 
payment. 

Each  of  these  will  be  briefly  considered. 

Determining  the  needs  of  the  organization  for  ma- 
terials, supplies  and  equipment  is  a  purchasing  prob- 

69 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

lem,  whether  the  purchasing  agent  be  charged  with  the 
work,  whether  other  units  of  organization  be  set  up  for 
the  purpose,  or  whether,  as  in  the  case  of  purchasers 
with  simple  needs,  this  determination  be  left  to  the 
users.  It  involves  the  elements  of  grade  and  variety 
of  articles,  total  quantity,  periodicity  of  delivery  and 
place  of  delivery.  The  importance  of  each  of  these  ele- 
ments varies  widely  among  industries  of  different  na- 
ture and,  within  the  same  industry,  with  the  urgency  of 
needs  and  with  general  market  conditions.  This  vary- 
ing importance  becomes  a  most  vital  consideration  in 
organization  and  management.  The  problem  of  deter- 
mining needs  for  special  work,  such  as  a  non-standard- 
ized construction  job,  is  entirely  different  from  that  of 
determining  those  of  a  manufacturing  company.  Both 
of  these  problems  differ  widely  from  those  of  a  railroad 
in  determining  its  needs  for  operating  and  maintenance, 
supplies  and  materials.  And  determining  the  needs  of 
institutions  for  food,  clothes  and  other  supplies  pre- 
sents a  still  different  problem. 

The  determination  of  current  market  conditions  and 
tendencies  is  a  purchasing  function  primarily  the  re- 
sponsibility of  the  purchasing  agent  or  department.  It 
involves  a  knowledge  of  general  business  conditions  and 
of  specific  conditions  and  tendencies  in  each  field  of 
purchase.  Without  adequate  knowledge  as  to  either 
general  or  specific  conditions,  there  can  be  no  skilled 
purchasing. 

Knowledge  of  general  business  conditions  is  essential 
not  only  to  weigh  and  explain  prices  currently  bid,  but 
also  as  a  guide  when  to  buy  and  in  what  quantities.  It 
is  essential  in  order  to  place  the  purchasing  agent  in  a 
position  to  lend  advice  as  to  the  advisability  of  starting 

70 


THE  PURCHASING  PROCESS  OUTLINED 

new  undertakings  or  speeding  up,  delaying  or  ceasing 
those  already  started. 

Knowledge  of  specific  conditions  and  tendencies  in 
each  field  of  purchase  is  essential  in  determining  the  pre- 
cise article  to  meet  each  need ;  in  weighing  and  explain- 
ing current  prices  bid;  in  deciding  when  to  buy  or  con- 
tract and  in  what  quantities ;  in  deciding  the  best  length 
of  contract  periods ;  and  in  determining  the  best  method 
of  purchasing  each  article  in  view  of  specific  conditions 
surrounding  its  supply,  such  as  labor  conditions,  trans- 
portation, availability  of  raw  materials  and  increased 
or  decreased  demand. 

From  the  viewpoint  of  the  trade  the  elements  essen- 
tial to  stimulate  competition  may  be  broadly  stated  as 
follows:  (i)  Specifications  sufficiently  broad  to  admit 
competition  on  all  articles  for  each  need;  (2)  complete 
information  on  invitations  for  bids  as  to  precise  re- 
quirements, method  of  bidding,  form  of  bids  and  basis 
of  award;  (3)  elimination  of  speculative  elements  as 
to  total  quantities  to  be  delivered,  time  and  frequency 
of  deliveries,  quantities  at  each  delivery,  place  of  de- 
Hvery,  delivery  conditions  at  each  place,  nature  of  tests 
and  causes  of  rejection;  (4)  a  high  reputation  pos- 
sessed by  the  purchaser  for  knowledge  of  his  precise 
needs,  knowledge  of  market  conditions,  judgment  in 
making  awards,  fairness  and  prompt  payment;  (5) 
elimination  of  troublesome  detail  and  red  tape  in  bid- 
ding, in  executing  purchase  agreements,  in  receipt  and 
inspection,  and  in  preparing  invoices  and  securing  pay- 
ment; (6)  attractive  quantities,  not  too  large  or  too 
small;  (7)  attractive  delivery  conditions  including  im- 
mediate transactions  with  consequent  rapid  turnovers 
of  stock,  bulk  deliveries,  facilities  at  points  of  deliver- 

71 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ies  which  eliminate  labor  and  delay,  and  deliveries  at 
the  dealer's  off  seasons  or  at  his  convenience. 

The  study  of  these  elements  must  carry  the  purchas- 
ing agent  to  all  available  sources  of  supply  for  each 
article — retailers,  wholesalers,  jobbers,  commission 
men,  and  producers  or  manufacturers — for  information 
as  to  conditions  which  may  attract  bids  from  each  class 
of  suppliers  and  as  to  their  ability  and  reliability. 

The  development  of  specifications  clearly  and  defi- 
nitely stating  needs  is  primarily  a  purchasing  problem, 
though  of  the  greatest  importance  in  stores,  cost,  ex- 
pense, property  and  general  accounting.  Industries 
vary,  and  necessarily  so,  in  respect  to  whether  responsi- 
bility for  the  development  of  clearly  worded  specifica- 
tions describing  the  requirements  to  be  met  shall  be 
placed  with  the  purchasing  department,  with  units  of 
organization  especially  instituted  for  the  purpose,  or 
left  with  those  who  are  to  use  the  articles.  But  there 
is  no  question  as  to  the  direct  interest  of  the  purchasing 
department  in  clearly  and  precisely  worded  purchase 
requisitions,  invitations  for  bids,  and  purchase  orders 
and  agreements;  this  concern  arises  from  the  neces- 
sity of  avoiding  delay,  of  eliminating  causes  of  contro- 
versy with  dealers,  and  of  providing  a  definite  basis  for 
settling  such  controversies  when  they  arise.  Conse- 
quently it  is  undoubtedly  in  all  organizations  the  duty 
of  the  purchasing  agent  to  take  the  initiative  in  the  de- 
velopment of  specifications  for  all  articles  not  already 
adequately  described.  And  in  the  preparation  of  speci- 
fications on  all  articles  to  be  purchased,  whether  the 
process  starts  with  the  purchasing  agent  or  not,  he  is 
consulted  by  reason  of  his  knowledge  of  what  is  in  the 
market  to  meet  each  need,  of  current  market  conditions 

72 


THE  PURCHASING  PROCESS  OUTLINED 

and  tendencies,  and  of  the  probable  effect  of  each  pro- 
vision on  competition  and  prices. 

The  process  of  preparing  specifications  clearly  de- 
scribing each  requirement  is  usually  simultaneous  with 
that  of  standardizing  requirements  and  eliminating  un- 
necessary grades  and  varieties  of  articles.  In  this  proc- 
ess also  the  purchasing  agent  has  a  direct  concern  in  so 
far  as  standardization  enables  him  to  invite  competi- 
tion on  large  instead  of  small  quantities,  and  in  so  far 
as  it  reduces  the  details  of  his  work.  Standardization 
also  facilitates  interchangeability  and  transfer  of  arti- 
cles and  thereby  reduces  the  necessity  of  purchase. 

Having  determined  the  precise  requirements  for 
which  he  is  to  purchase  supplies,  materials  or  equip- 
ment, the  market  conditions  and  tendencies  affecting  the 
supply  of  each  article  needed,  and  the  elements  essen- 
tial to  securing  the  fullest  competition,  and  having  as- 
sured himself  that  he  is  provided  with  clearly  and  defi- 
nitely worded  descriptions  of  each  article  needed,  it  is 
the  responsibility  of  the  purchasing  agent  to  use  this 
knowledge  in  devising  a  method  of  inviting  bids  best 
adapted  to  the  needs  of  the  service  and  those  of  dealers 
from  whom  competition  must  be  sought. 

The  purchasing  agent  has  a  choice  of  many  methods, 
as  a  rule,  and  is,  therefore,  to  a  large  extent  entitled  to 
credit  for  success  or  chargeable  with  failure  of  the 
method  selected.  His  judgment  in  selecting  methods 
of  inviting  bids  is,  in  fact,  the  proof  of  his  skill  in  recon- 
ciling purchase  requirements  with  market  conditions. 
This  involves  two  classes  of  problems:  first,  those  re- 
lating to  the  definiteness  or  flexibility  of  purchase  agree- 
ments as  to  article,  period  of  agreement,  frequency  of 
delivery,  other  delivery  conditions,  and  prices ;  and  sec- 
ondly, those  relating  to  the  form  of  invitation  for  bids 

73 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

and  methods  of  award.  In  this  connection  must  be 
considered  the  advantages  and  drawbacks  of  formal 
contracts  of  rigidly  binding  character.  This  question 
is  of  particular  importance  in  the  transaction  of  gov- 
ernment business  where  such  formal  contracts  are  used 
to  a  far  greater  extent  than  among  private  corporations 
to  enforce  purchase  agreements. 

The  choice  of  a  method  of  stimulating  competition 
on  invitations  for  bids  involves  the  process  of  placing 
invitations  for  bids  before  all  possible  bidders  in  a  way 
that  will  forcefully  bring  to  their  attention  the  desira- 
bility of  submitting  offers.  Essentially  this  problem 
may  be  divided  into  (i)  the  problem  of  securing  pub- 
licity for  the  purchaser's  requirements,  and  (2)  that  of 
stimulating  the  desire  of  those  who  have  the  necessary 
goods  to  sell  them  at  a  fair  price. 

The  problem  of  making  awards  involves  the  purely 
mechanical  or  formal  processes  necessary  for  ready 
comparison  of  offers  and  for  presenting  the  result  to 
the  proper  authorities  for  review,  and  the  essentially 
discretionary  process  of  deciding  which  offer  is  most 
advantageous.  The  latter  process  involves  judgment 
not  only  as  to  fairness  of  price  but  also  as  to  the  merit 
of  articles  offered  for  sale,  the  ability  of  dealers  to  meet 
all  delivery  requirements  and  their  reliability. 

The  problem  of  enforcing  purchase  agreements  in- 
volves following  up  purchase  orders  and  inspecting  de- 
liveries. Follow-up,  especially  during  periods  of  dis- 
turbed market  conditions,  becomes  one  of  the  most  ur- 
gent responsibilities  of  the  purchasing  agent  or  of  any 
other  office,  independent  of  the  purchasing  agent,  estab- 
lished for  the  purpose.  In  a  busy  industrial  plant  it 
is  of  the  greatest  importance  in  order  that  deliveries 
may  be  perfectly  coordinated  with  the  time  schedules 

74 


THE  PURCHASING  PROCESS  OUTLINED 

of  requirements.  Inspection  of  deliveries,  while  pri- 
marily a  check  on  the  reliability  of  the  vendor,  is  of  al- 
most equal  importance  as  a  check  on  the  efficiency  of 
the  purchasing  office. 

The  problem  of  checking  invoices  and  securing 
prompt  payment  of  bills  is  an  auditing  problem  involv- 
ing the  correctness  of  arithmetic  of  invoices  and  the  as- 
surance that  deliveries  correspond  to  purchase  orders  in 
quantity  and  quality  and  that  no  overcharge  or  dupli- 
cate charge  is  made  for  goods  received  and  inspected. 
The  purchasing  department  is  probably  equally  con- 
cerned with  the  accuracy  of  invoices  on  the  one  hand  and 
prompt  payment  on  the  other  hand,  since  without  the 
latter  discounts  are  lost  and  the  purchaser  soon  loses 
among  dealers  an  essential  element  in  his  purchasing 
reputation. 


CHAPTER  V 
DETERMINING  PURCHASE  REQUIREMENTS 

In  a  simple  manufacturing  industry  with  but  one  prod- 
uct, and  that  a  staple  one,  and  with  market  conditions 
steady  and  the  demand  for  the  output  practically  un- 
varying, the  problem  of  determining  purchase  needs  is 
a  simple  one.  On  the  other  hand,  in  a  highly  complex 
industry  with  thousands  of  products,  part  of  them  pos- 
sibly made  to  order  and  the  balance  an  established 
standardized  output,  the  problem  of  determining  pur- 
chase needs  for  materials,  supplies  and  equipment  is 
exceedingly  complex,  increasingly  so  as  market  condi- 
tions become  unsettled  and  as  there  is  variation  in  the 
demand  for  the  output. 

In  the  ordinary  operations  of  governments  the  de- 
termination of  purchase  requirements  presents  no  seri- 
ous difficulty.  The  fair  degree  of  certainty  with  which 
the  rate  of  expansion  of  government  enterprises  may  be 
predicted,  and  the  necessity  that  those  enterprises  be 
carried  forward  virtually  regardless  of  market  condi- 
tions make  the  task,  by  comparison  with  the  difficulties 
encountered  in  industrial  life,  a  relatively  simple  one. 
But  it  will  nevertheless  be  of  value  to  examine  the  prob- 
lem as  it  presents  itself  in  several  types  of  industrial 
enterprise — construction,  manufacturing  and  public 
utility. 

The  determination  of  purchase  requirements  involves 
(i)  the  determination  of  the  kinds  of  articles  needed; 
(2)  the  determination  of  the  total  quantities  needed; 

76 


DETERMINING  PURCHASE  REQUIREMENTS 

(3)   the  determination  of  the  frequency  of  need  and 
quantity  at  each  delivery. 

Determining  Kinds  of  Articles  Needed.  The  first  step 
in  the  determination  of  the  kinds  of  articles  needed 
is  taken  at  the  inception  of  plans  for  a  new  line  of  work. 
(X)etailed  analysis  of  the  work  into  its  units  is  required 
and  the  subanalysis  of  each  unit  into  the  material 
things  required  for  its  performance  or  production.  In- 
cidental to  this  analysis  is  the  process  of  standardiza- 
tion, which  means  simply  the  elimination  of  unnecessary 
grades  and  varieties  of  articles  bought  by  selecting  the 
same  article  for  several  units  of  work  wherever  prac- 
ticable. The  results  of  this  process  of  analysis  and 
standardization  are  assembled  in  detailed  descriptive 
lists  of  requirements  for  each  unit  of  work.  Lastly,  it 
is  necessary  to  determine  in  connection  with  each  article 
needed  whether  it  is  to  be  purchased  or  manufactured. 
Construction  Jobs.  In  determining  the  kinds  of  ar- 
ticles required  for  a  construction  job,  the  analysis  of 
the  work  into  its  units  and  the  subanalysis  of  each  unit 
into  the  material  things  needed  is  done  by  the  engineer- 
ing department.  It  includes  not  only  construction  ma- 
terials for  every  element  of  the  job  but  supplies  such 
as  coal,  lubricants,  etc.,  and  special  equipment  not  al- 
ready possessed  by  the  construction  company. .)  The  pre- 
cise article  needed  for  each  unit  of  the  work  is  usually 
settled  upon  by  the  engineer  in  charge  of  the  job.  Vari- 
ations from  the  original  plans  necessary  to  meet  chang- 
ing conditions  or  the  wishes  of  the  client  are  usually 
planned  by  the  engineer  in  charge.  Every  detail  of 
the  materials  of  construction  is  reduced  to  a  material 
list  for  each  part  of  the  work.     For  each  specific  arti- 

77 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

cle  a  blue-print  or  a  precisely  worded  specification  is 
developed. 

In  a  large  construction  company  the  purchasing  agent 
is  consulted  by  the  engineer  in  charge  at  the  very  incep- 
tion of  planning  on  each  job,  in  order  to  take  advantage 
of  his  knowledge  of  market  conditions  in  planning  for 
each  material,  and  in  order  also  to  give  him  such  ad- 
vance information  of  requirements  as  will  enable  him 
to  locate  sources  of  supply. 

On  construction  jobs,  as  a  general  thing,  the  matter 
of  determination  as  to  whether  the  article  is  to  be  pur- 
chased or  manufactured  by  the  purchaser  is  simply  a 
question  of  the  degree  of  fabrication  of  the  various  ma- 
terials to  be  procured,  for  example,  whether  the  stone 
which  is  to  go  into  a  building  is  to  be  purchased  cut  to 
the  last  degree  of  adaptation  for  its  place  in  the  struc- 
ture. 

Manufacturing  Jobs.  In  a  manufacturing  company 
the  analysis  of  work  into  units  and  the  subanalysis  of 
each  unit  into  things  required  is  the  work  of  the  en- 
gineering or  planning  department.  Practically  all  mod- 
ern manufacturing  companies  have  such  departments 
variously  designated.  The  work  begins  with  experi- 
mental work  by  the  engineering  or  planning  department, 
in  the  case  of  an  automobile  company,  for  example,  re- 
sulting in  an  experimental  machine.  The  analysis  of 
this  machine,  if  it  be  adopted  as  standard,  includes  pro- 
duction materials  and  special  equipment  not  at  hand 
needed  for  its  manufacture. 

Incidental  to  this  analysis  is  the  work  of  standardiza- 
tion. In  most  large  manufacturing  companies  stand- 
ardization of  materials,  supplies  and  equipment  is  con- 
ducted by  a  standardizing  board  or  committee.  In  the 
Pullman  Company  this  board  consists  of  the  chief  engi- 

78 


DETERMINING  PURCHASE  REQUIREMENTS 

neer  of  the  production  department,  the  vice-president, 
the  general  manager  of  the  production  department,  the 
assistant  to  the  president  and  the  director  of  purchases. 
In  the  East  Pittsburgh  plant  of  the  Westinghouse  Elec- 
tric &  Manufacturing  Company,  the  specification  com- 
mittee includes  the  resident  engineer,  one  of  the  work's 
directors  and  the  purchasing  agent.  Every  item  which 
is  suggested  by  any  one,  whether  it  be  the  designing  or 
engineering  department  or  a  subordinate  in  the  pur- 
chasing department,  as  a  suitable  material,  supply,  or 
article  of  equipment  for  any  purpose,  is  submitted  to 
this  board  or  committee. 

Determination  of  whether  an  article  is  to  be  pur- 
chased in  finished  form  or  manufactured  by  the  pur- 
chaser is  primarily  a  question  for  the  engineering  or 
designing  department,  with  the  purchasing  agent  act- 
ing in  an  advisory  capacity.  Naturally  the  purchasing 
agent's  advice  becomes  of  the  highest  importance  in 
this  field  in  view  of  his  knowledge  of  available  sources 
of  supply  to  furnish  the  specific  article  in  finished  form. 
In  the  Packard  Motor  Company  of  Detroit,  in  the  case 
of  forgings  and  castings,  it  is  the  practice  of  the  pur- 
chasing agent  to  supplement  his  information  in  regard 
to  market  conditions  by  inviting  experimental  bids  on 
each  part,  the  invitation  including  not  only  outside  con- 
cerns which  manufacture  the  parts  but  also  the  forge 
and  foundry  of  the  Packard  Company  itself.  In  short, 
the  forge  and  foundry  are  counted  as  independent  or- 
ganizations for  this  purpose.  If  they  underbid  outside 
bidders,  the  job  of  making  the  parts  is  given  to  them. 

Public  Utilities.  In  analyzing  the  work  of  a  public 
utility,  such  as  a  railroad  or  a  street  railway  company, 
and  in  determining  the  precise  articles  needed  for  each 
unit  of  work,  dependence  must  be  placed  largely  upon 

79 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

their  several  departments;  for  example,  on  a  railroad, 
upon  the  operating,  the  mechanical  and  the  maintenance 
of  way  departments.  Each  of  these  departments  has 
its  distinct  problems,  whereas  in  a  manufacturing  com- 
pany there  is  apt  to  be  but  one  main  problem — that  of 
production.  But  the  great  majority  of  requirements 
are,  as  a  rule,  standardized  in  each  one  of  the  depart- 
ments. Railroads  through  their  general  storekeeping 
departments  also  standardize  the  requirements  of  the 
several  departments,  inducing  both  the  operating  and 
the  mechanical  departments,  for  example,  to  use  the 
same  varieties  of  lubricants  wherever  possible  or  the 
same  size  and  kind  of  bolts. 

In  a  public  utility  the  advice  of  the  purchasing  agent 
is  apt  to  be  sought  to  a  far  less  extent  than  in  a  manu- 
facturing company  in  determining  the  precise  needs. 
On  many  railroads,  however,  the  purchasing  agent  is 
a  vice-president  or  there  is  a  vice-president  over  both 
the  purchasing  department  and  the  stores  department; 
and  through  such  an  official  the  necessary  contact  is 
established  with  the  other  departments  of  the  railroad 
to  insure  that  determination  of  needs  is  made  in  the 
light  of  the  purchasing  agent's  knowledge  of  market 
conditions. 

Determination  of  whether  an  article  is  to  be  pur- 
chased or  made  by  the  purchaser  is  left  largely  to  the 
several  departments.  On  this  point,  however,  on  the 
majority  of  railroads,  the  advice  of  the  general  store- 
keeper and  of  the  purchasing  agent  is  being  increasingly 
sought.  The  reclamation  work  of  railroads  has,  in 
many  cases,  been  taken  over  by  the  general  storekeeper 
or  even  by  the  purchasing  agent  (the  latter  is  the  case 
on  the  Santa  Fe),  and  either  through  the  close  contact 
between  the  general   storekeeper  and  the  purchasing 

80 


DETERMINING  PURCHASE  REQUIREMENTS 

agent,  or  without  this,  when  the  reclamation  work  is  un- 
der the  purchasing  agent's  own  control,  the  latter's  in- 
formation as  to  market  conditions,  conditions  of  manu- 
facture, etc.,  is  a  prime  element  in  determining  whether 
articles  shall  be  refabricated  or  sold  as  scrap  and  new 
articles  bought. 

Prompt  advice  to  the  purchasing  agent  as  to  the  pre- 
cise article  needed,  most  railroads  undertake  to  secure 
through  the  general  storekeeper.  But  it  is  generally 
recognized  that  there  is  not,  as  yet,  on  railroads  the 
complete  coordination  between  the  departments  which 
are  to  use  the  articles  and  the  stores  and  purchasing 
departments  that  there  is  among  the  most  efficient  man- 
ufacturing companies. 

Public  Institutions.  In  the  case  of  departments  of 
government  which  operate  corrective  or  charitable  in- 
stitutions, such  as  prisons  or  hospitals,  the  analysis  of 
work  into  units  and  the  subanalysis  of  units  of  work 
into  things  needed  is,  as  a  rule,  the  work  of  several  in- 
dividuals. Responsibility  for  determining  require- 
ments is,  for  example,  in  an  institutional  department  of 
New  York  City  distributed  between  the  dietitian,  the 
chief  engineer,  the  auditor,  the  superintendent  of  laun- 
dries, the  head  druggist  and  the  general  storekeeper. 
In  so  far  as  furnishing,  preparing  and  serving  food  sup- 
plies are  concerned,  the  analysis  of  work  into  its  sev- 
eral units  by  the  dietitian  corresponds,  to  a  large  de- 
gree, to  the  analysis  of  the  engineering  or  the  designing 
department  of  an  industrial  plant.  It  involves  the 
analysis  of  the  food  requirements  of  each  class  of  in- 
stitutional inmates,  and  setting  up  allowances  per  day 
or  per  meal  for  individuals  in  each  class  with  the  nec- 
essary variety.  As  respects  clothing,  practically  the 
same  problem  is  involved.     The  determination  of  re- 

8i 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

quirements  of  materials,  supplies  and  equipment  for  an 
institutional  department  is  of  course  far  less  compli- 
cated than  the  determination  of  materials  for  a  manu- 
facturing company,  on  account  of  the  absence  of  the 
necessity  of  guarding  against  the  purchase  of  articles 
made  obsolete  by  constant  change  in  design.  That  this 
danger  exists,  however,  in  institutional  departments,  in 
spite  of  the  comparative  simplicity  of  the  problem,  is 
evidenced  by  the  large  number  of  obsolete  articles 
which  are  found  in  the  stores  of  practically  all  such  de- 
partments. The  problem  becomes  somewhat  difficult  in 
the  matter  of  purchase  of  hospital  supplies  where, 
though  standardization  is  possible  to  a  large  degree,  a 
great  variety  of  articles  must  be  purchased  to  meet  spe- 
cial requirements.  The  purchasing  agent  of  an  insti- 
tutional department  acts  in  an  advisory  capacity  to  those 
responsible  for  determining  precise  requirements.  This 
is  far  less  the  case,  however,  than  in  a  manufacturing 
company  or  even  in  a  public  utility,  such  as  a  railroad. 
While  in  a  manufacturing  company  it  is  usually  con- 
sidered that  the  advice  of  the  purchasing  agent  is  essen- 
tial to  determine  all  precise  requirements  and  is,  there- 
fore, to  be  sought  at  the  very  beginning  of  plan-mak- 
ing, the  purchasing  agents  of  institutional  departments 
have,  to  a  large  extent,  been  relegated  to  a  clerical  ca- 
pacity, their  advice  being  sought  only  infrequently  in 
planning  requirements.  In  an  institutional  department 
it  is  apt  to  be  considered  that  the  determination  of  pre- 
cise needs  is  no  one's  responsibility  or  concern  but  of 
those  who  are  to  use  the  goods,  and  the  advice  of  the 
purchasing  agent  is  not  sought.  In  the  work  of  stand- 
ardization of  food  supplies,  clothing,  fuel,  etc.,  the  pur- 
chasing agent  is  consulted,  but  in  the  preparation  of 
plans  for  new  work,  involving  the  purchase  of  materi- 

82 


DETERMINING  PURCHASE  REQUIREMENTS 

als,  supplies  or  equipment,  the  purchasing  agent  must, 
as  a  rule,  delve  for  himself  if  he  expects  to  have  advance 
information  of  what  these  precise  requirements  will  be. 
Determination  of  what  articles  shall  be  purchased  and 
what  manufactured  is,  in  an  institutional  department,  a 
matter  of  considerable  importance  as  respects  both  food 
supplies  and  clothing.  In  the  case  of  food  supplies  such 
questions  arise  as  whether  coffee  shall  be  bought 
roasted,  or  green,  to  be  roasted  by  the  department,  and 
whether  bread  shall  be  bought  or  the  department  shall 
operate  its  own  bakery.  In  the  case  of  clothing,  ques- 
tions arise  as  to  whether  uniforms  and  other  articles 
of  apparel  shall  be  made  by  the  institution  or  bought 
ready  made.  Many  other  problems  of  this  nature  arise, 
such  as  whether  the  department  shall  make  its  own  soap 
or  buy  it  Determination  of  these  questions  is  almost 
invariably  in  institutional  departments  left  to  several 
officers  or  employees.  There  is  no  centralization  of  re- 
sponsibility to  this  end  such  as  exists  in  a  manufactur- 
ing company  or  in  a  railroad. 

Determining  Total  Quantities  Needed.  A  knowledge, 
well  in  advance  of  need,  of  the  total  quantities  required 
of  each  article  is  essential  to  the  purchasing  agent  in 
order  that  in  planning  his  method  of  purchase  he  may 
take  a  long  view  of  market  conditions.  jThus,  it  is  nec- 
essary to  have  this  information  to  determine,  for  exam- 
ple, whether  it  is  better  to  purchase  in  bulk  and  store, 
or  to  contract  for  periodic  deliveries.  Equally  essential 
is  it  in  negotiating  with  prospective  vendors,  bidders 
requiring,  as  a  rule,  at  least  an  estimated  total  quantity 
if  they  are  asked  to  bid  upon  the  requirements  for  an 
entire  job  or  period.  'The  determination  of  total  quan- 
tities required  of  each  specific  article  involves  the  de- 

83 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

termination  not  merely  of  the  total  quantities  of  each 
article  required  for  each  unit  of  work,  but  also  of  the 
quantities  on  hand,  and  of  the  transfer  ability  of  any 
items  on  hand,  which  may  be  in  excess,  to  other  places 
or  purposes.  ) 

Construction  Jobs.  The  determination  of  quantities 
needed  for  each  unit  of  work  on  a  construction  job  is, 
so  far  as  construction  materials  are  concerned,  a  prob- 
lem in  arithmetic  based  on  material  lists  and  detailed 
specifications.  It  involves  of  course  the  analysis  of 
each  item  of  raw  material,  for  example,  each  size  of 
lumber  or  each  length  of  reinforcement  bar,  to  deter- 
mine what  cut  lengths  or  sizes  may  be  secured  there- 
from. This  is  the  work  of  the  engineering  depart- 
ment, and  any  advice  that  the  purchasing  agent  may 
give  is  only  incidental  from  his  knowledge  of  sizes,  etc., 
of  material  in  the  market  to  meet  each  need. 

On  construction  jobs  the  element  of  transfer  ability 
to  reduce  total  quantities  required  for  a  particular  unit 
of  work  is  by  no  means  as  important  as  in  the  case  of 
a  manufacturing  company  or  a  railroad.  Each  con- 
struction job  must  be  considered  as  a  distinct  unit,  to  a 
large  extent,  and  there  is  little  transfer  of  excess  ma- 
terials from  one  job  to  another.  Deliveries  are  planned 
so  as  to  avoid  any  such  excess. 

Manufacturing  Jobs.  The  analysis  of  total  quanti- 
ties required  for  a  manufacturing  job  is,  as  respects 
production  materials,  merely  a  matter  of  arithmetic, 
once  the  results  procurable  from  each  unit  of  raw  ma- 
terial have  been  determined.  So  far  as  tools  and  in- 
struments are  concerned,  the  total  quantity  needed  is 
usually  a  matter  of  computing  past  consumption,  ex- 
cept in  the  case  of  special  tools  necessary  for  a  partic- 
ular purpose.     The  total  quantities  of  those  needed  are 

84 


DETERMINING  PURCHASE  REQUIREMENTS 

apt  to  be  figured  as  the  total  quantities  of  similar  items 
used  during  a  past  period,  increased  or  decreased  to 
accord  with  changes  in  manufacturing  plans.  This  is 
also  the  case  with  production  supplies,  such  as  coal, 
lubricants,  cutting  oil,  etc. 

Public  Utilities.  No  new  elements  are  involved  in 
the  problem  of  determining  total  quantities  of  each  ar- 
ticle necessary  for  the  operation  of  a  public  utility,  such 
as  a  railroad.  The  operating  requirements  of  a  rail- 
road are  well  standardized.  Total  quantities  of  each 
standard  item  for  operation,  repair  or  maintenance  are 
based  upon  past  constunption  for  a  corresponding  pe- 
riod. There  is  little  danger  of  obsolescence  of  such 
standard  items  owing  to  change  in  plans  or  owing  to. 
the  introduction  of  new  products  used  for  the  same  pur- 
pose. In  the  case  of  the  introduction  of  new  products, 
their  use,  as  a  rule,  does  not  commence  until  the  old- 
product  is  used  up.  There  is  a  far  greater  possibility 
of  profitable  transfer  of  articles  in  excess  quantities  at 
any  point  on  a  railroad  than  in  the  case  of  either  a  con- 
struction or  a  manufacturing  company.  The  railroad 
provides  its  own  transportation  facilities  for  making 
such  transfers  and  its  chief  item  of  expense  therein  is 
the  labor  involved  in  handling  the  goods.  Therefore, 
in  considering  the  total  quantities  of  each  item  needed 
for  the  operation  of  a  railroad,  it  is  necessary  to  take 
into  consideration  not  only  the  quantity  found  on  in- 
ventory at  each  point  for  each  unit  of  work,  but  also 
the  important  element  of  transfer  ability  of  articles  in 
excess  quantities  at  other  points  on  the  line. 

Public  Institutions.  In  a  department  supporting  cor- 
rective or  charitable  institutions,  the  problem  of  deter- 
mining total  quantities  of  each  item  to  be  purchased  is 
comparatively   simple.     There  are   few  complex  ques- 

85 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tions  such  as  arise  in  a  construction  or  manufacturing" 
plant  owing  to  changes  in  plan.  The  few  complications 
which  do  arise  in  the  matter  of  total  quantities  are 
chiefly  caused  by  an  unforeseen  increase  or  decrease  in 
the  number  of  inmates  in  the  institutions.  But  it  is 
generally  true  that  in  institutional  departments  the  re- 
quirements of  each  precise  article  may  easily  be  fairly 
well  standardized.  The  analysis  of  the  requirements 
of  food  supplies  becomes  a  mere  matter  of  arithmetic 
for  the  dietitian,  multiplying  the  requirements  of  each 
item  for  each  inmate  of  each  class  (employees,  patients, 
etc.)  by  the  anticipated  number  of  such  inmates.  The 
problem  is  not  greatly  complicated  by  the  necessity  of 
giving  variety  in  foodstuffs,  since  it  is  easily  possible 
for  the  dietitian  to  plan  this  variety  over  any  given  pe- 
riod. In  the  case  of  clothing,  the  problem  is  even  less 
complex  than  in  the  case  of  foodstuffs.  In  the  case 
of  general  plant  supplies  and  of  supplies,  materials  and 
equipment  for  repairs  and  maintenance,  the  total  quan- 
tity requirements  of  each  standard  item  must  be  deter- 
mined to  a  large  extent  from  past  experience. 

The  element  of  reducing  total  quantities  needed  for 
each  unit  of  work  by  transferring  thereto  quantities 
found  in  excess  of  requirements  for  any  other  unit  is 
an  important  consideration  in  institutional  departments. 
As  a  rule,  however,  it  is  found  that  such  departments 
are  apt  to  make  little  provision  for  such  transfer  and 
to  figure  separately  total  quantities  needed  for  each  unit. 

Determining'  Frequency  of  Need  and  Quantity  at  Each 
Delivery.  To  secure  complete  coordination  between 
purchases  and  storage  facilities  in  order  that  these  facil- 
ities may  not  be  overtaxed  and  yet  may  be  used  to  their 
fullest  advantage,  it  is  necessary  to  determine  the  essen- 

86 


DETERMINING  PURCHASE  REQUIREMENTS 

tial  frequency  of  delivery  of  each  item  and  the  quan- 
tities at  each  deHvery.  This  information  is  necessary, 
also,  to  prevent  overstock  of  items  as  to  which  there 
is  danger  of  obsolescence,  or  of  deterioration,  and  to 
prevent  overinvestment  in  stock  at  any  given  time. 
Strictly  from  the  purchasing  agent's  standpoint  it  is 
moreover  essential  in  conducting  purchase  negotiations, 
bidders  requiring,  as  far  as  possible,  information  in  re- 
gard to  when  and  how  they  will  be  called  upon  to  de- 
liver. 

f  The  determination  of  the  frequency  and  quantity  of 
deliveries  involves,  first,  an  analysis  of  the  total  work 
planned  or  anticipated  into  units  and  the  preparation  of 
a  time  schedule  for  each  unit,  this  schedule  being  re- 
vised from  time  to  time  to,  accord  with  progress  re- 
ports. The  quantities  on  hand  for  each  unit  of  work 
at  each  period  of  the  time  schedule  and  the  transfer 
ability  of  items  from  one  unit  of  work  to  another  at 
each  period  of  the  time  schedule  must  next  be  deter- 
mined. It  is  then  possible  to  arrange  for  deliveries  to 
accord  with  the  time  schedule. 

Construction  Jobs.  On  a  construction  job  there  is 
the  greatest  necessity  of  coordination  of  deliveries  with 
storage  facilities  and  with  work  planned.  This  scarcely 
needs  proof.  The  construction  gang  is  too  great  an 
expense  burden  to  maintain  in  idleness,  waiting  for  nec- 
essary materials,  and,  on  the  other  hand,  the  force  can- 
not be  dismissed  and  reassembled  at  will.  In  the  con- 
struction of  a  building  or  of  a  railroad  bridge,  it  is  use- 
less that  the  construction  gang  should  find  on  hand  at 
the  beginning  of  the  job  materials  which  will  not  be 
needed  until  the  job  is  half  completed.  They  must  find 
on  hand  the  precise  materials,  supplies  and  equipment 
necessary  for  starting  the  job  and  each  material  must 

87 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

appear  when  it  is  needed  and  in  the  correct  quantities. 

The  analysis  of  the  total  work  into  its  units  and  the 
preparation  of  a  time  schedule  for  each  unit  is  in  a  con- 
struction company  the  work  of  the  engineers.  Special 
work  is,  however,  subject  to  change  to  accord  with  local 
conditions  discovered  during  the  course  of  construction 
or  to  meet  changing  fancies  of  the  client.  A  further 
element  which  complicates  many  construction  jobs  is 
the  element  of  seasonal  changes.  And  on  all  jobs,  no 
matter  how  simple  or  complex,  a  prime  consideration  is 
the  matter  of  market  conditions.  In  this  respect  the 
advice  of  the  purchasing  agent  is  indispensable. 

The  revision  of  the  time  schedule  to  accord  with  prog- 
ress reports  from  time  to  time,  and  consequent  revision 
of  the  frequency  of  need  and  of  the  quantity  at  each 
delivery  is  an  obvious  necessity.  This  information 
comes  to  the  purchasing  agent  from  the  engineers  in 
charge  of  the  work,  as  does  the  original  information  of 
the  time  schedule  for  each  unit  of  work,  of  the  fre- 
quency of  delivery,  and  quantities  at  each  delivery  to 
meet  each  time  schedule. 

The  purchasing  agent  has  but  one  authority  to  de- 
pend upon  for  early  advice  as  to  time  schedules  and 
any  changes  therein,  and  also  as  to  amounts  on  hand 
at  any  period  and  the  possibility  of  transfer  from  one 
unit  of  work  to  another.  This  single  source  of  informa- 
tion is  the  engineer  in  charge  of  the  construction  job. 

Manufacturing  Jobs.  In  a  manufacturing  job  of 
complex  requirements,  such  as  the  manufacture  of  elec- 
trical equipment  or  automobiles,  the  element  of  coor- 
dination of  deliveries  with  storage  facilities  and  work 
planned  is  of  the  greatest  importance.  Without  such 
coordination  sub-assemblies  and  final  assemblies  of 
completed  products  would  be  delayed,  whole  depart- 

88 


DETERMINING  PURCHASE  REQUIREMENTS 

ments  made  idle  or  required  to  shift  frequently  from 
one  job  to  another,  and  storage  facilities  either  over- 
taxed or  comparatively  empty.  In  most  manufactur- 
ing industries  the  problem  of  coordinating  deliveries 
with  requirements  also  involves  as  an  element  of  prime 
importance  the  matter  of  keeping  investment  in  stock 
down  to  the  lowest  possible  total. 

In  the  analysis  of  the  total  work  planned  into  units 
and  the  development  of  a  time  schedule  for  each  unit, 
the  task  is  merely  one  of  determining  the  output  planned 
into  periods  of  months  or  weeks,  and  scheduling  for 
each  part  the  total  output  necessary  for  a  unit  of  time, 
in  order  to  completely  coordinate  the  work  of  final  as- 
sembly of  the  completed  product. 

As  an  example  of  the  means  adopted  by  a  manufac- 
turing company  to  maintain  an  adequate  stock  of  ma- 
terials and  parts,  as  well  as  of  all  supplies  and  equip- 
ment, the  stock  ledger  form  of  the  Westinghouse  Elec- 
tric &  Manufacturing  Company  may  be  cited.  These 
ledgers  are  kept  by  the  general  storekeeper.  The  mini- 
mum size  of  the  stock  for  each  item  is  determined  by 
notification  from  the  engineering  department  as  to  pro- 
duction plans,  revised  from  time  to  time  by  the  general 
storekeeper  to  accord  with  the  necessary  changes  in 
plans  or  to  accord  with  progress  in  production.  The 
form  provides  for  the  following  information: 

1.  Quantities  ordered  on  purchase  requisition  (if 
the  article  is  to  be  purchased)  or  on  factory  order  if  it 
is  to  be  made  in  the  factory. 

2.  Quantities  required  by  "stock  specifications" 
(from  the  engineering  department)  or  factory  orders 
to  meet  needs. 

89 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

3.  Quantities  available  in  stock  or  on  purchase  or 
factory  order  to  meet  needs. 

4.  Receipts  into  stock. 

5.  Issues  from  stock. 

The  difference  between  the  quantities  required  to 
meet  stock  specifications  or  factory  orders,  and  the 
quantities  available  in  stock  or  on  purchase  or  factory 
order  to  meet  requirements  is  the  total  quantity  avail- 
able for  further  additional  requirements.  The  differ- 
ence between  the  receipts  into  stock  and  issues  from 
stock  is  the  balance  on  hand  in  stock  to  meet  require- 
ments. The  minimum  size  of  an  order  (purchase  or 
factory  order)  is  revised,  in  the  case  of  standard  items, 
about  every  three  months  to  accord  with  issues  to  the 
factory.  These  changes  are  notified  to  the  sales  and 
engineering  departments  by  the  general  storekeeper  to 
give  these  departments  an  opportunity  to  order  the 
discontinuance  of  a  part  or  material,  thus  providing 
the  final  check  against  continuing  the  purchase  or  man- 
ufacture of  obsolete  parts  or  materials.  It  is  the  duty 
of  the  general  storekeeper  to  issue  a  new  purchase 
requisition  or  factory  order  whenever  the  minimum 
amount  of  stock  available,  both  on  hand  and  on  order, 
has  reached  the  danger  points. 

The  determination  of  the  general  storekeeper  as  to 
quantities  required  is  supplemented  by  shortage  reports 
from  the  manufacturing  department  to  the  general 
storekeeper.  These  shortage  reports  are  found  neces- 
sary in  all  factories  to  revise  the  mathematical  deter- 
mination of  the  general  storekeeper  and  of  the  pur- 
chasing department.  In  the  Packard  Motor  Car  Com- 
pany, for  example,  the  shortage  report  for  finished  stock 
comes  weekly  from  the  sub-store  closely  in  touch  with 

90 


DETERMINING  PURCHASE  REQUIREMENTS 

the  manufacturing  department.  Each  report  covers  for 
the  items  listed  thereon  approximately  a  month's  re- 
quirements. The  sub-storekeeper  submits  such  a  report 
for  an  item  when  he  finds  from  examination  of  his  bins, 
in  comparison  with  his  stock  records,  that  he  has  not  on 
hand  a  sufficient  quantity  to  last  him  one  month.  Copies 
of  the  shortage  report  are  sent  also  to  the  purchasing 
department,  to  the  planning  department  and  to  the  pro- 
duction department.  In  the  light  of  these  reports  the 
planning  department  (in  which  in  the  Packard  Company 
is  concentrated  responsibility  for  determining  quanti- 
ties and  frequency  of  deliveries)  revises  its  determina- 
tions and  so  notifies  the  purchasing  department. 

It  is  common  practice  that  whenever  any  item  of  ma- 
terials or  any  part  is  found  to  be  in  excess  of  require- 
ments or  a  change  in  plans  has  been  made  discontinu- 
ing its  use,  a  notice  is  sent  to  the  purchasing  agent 
requesting  that  he  arrange  a  cancellation  of  the  pur- 
chase agreement  under  which  it  is  procured: 

Large  corporations  which  have  several  factories  pro- 
ducing the  same  articles  and,  therefore,  using  the  same 
materials  and  parts  provide  each  other  with  notices  of 
excess  stock.  In  the  General  Electric  Company  such 
notices  are  prepared  once  a  month  by  the  order  and 
stores  department  of  each  factory,  and  sent  by  each 
to  the  order  and  stores  department  of  each  of  the  other 
factories,  as  well  as  to  the  general  purchasing  agent. 
In  each  of  the  order  and  stores  departments  informa- 
tion received  as  to  excess  stock  at  other  factories  is 
transcribed  to  an  excess  stock  card,  which  card  is 
placed  in  the  rear  of  the  regular  stock  card  for  the  par- 
ticular item  to  notify  the  stock  clerk  in  charge,  as  he 
goes  over  his  cards  to  make  up  purchase  orders,  that 
certain  quantities  of  the  items  may  be  secured  by  trans- 

91 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

fer  from  other  factories.  The  concentration  of  excess 
stock  reports  of  the  several  factories  in  the  office  of  the 
general  purchasing  agent  enables  this  office  to  deter- 
mine whether  or  not  it  is  necessary  at  any  time  to  pur- 
chase any  additional  quantities  of  an  item,  in  the  light 
of  complete  information  thereon  for  the  company  as  a 
whole.  The  American  Locomotive  Company,  the  West- 
inghouse  Electric  &  Manufacturing  Company  and  many 
other  companies,  which  include  several  plants,  provide 
for  similar  use  of  information  as  to  excess  stock. 

The  prompt  advice  to  the  purchasing  agent  of  the 
precise  needs  of  each  unit  of  work  is  secured  through 
the  immediate  transmission  to  the  purchasing  depart- 
ment of  all  detailed  work  schedules.  By  means  of  this 
information  of  requirements  at  each  period  and  also  by 
means  of  his  information  in  many  companies  as  a  mem- 
ber of  the  executive  committee,  the  purchasing  agent  is 
able  to  schedule  deliveries  far  in  excess  of  requirements. 
As  has  been  previously  stated,  the  precise  development 
of  the  schedule  of  deliveries  in  a  large  manufacturing 
plant  of  complex  needs  is  usually  the  work  of  a  general 
storekeeper  or  some  other  official  independent  of  the 
purchasing  department  though  working  in  the  closest 
cooperation  therewith,  and  it  is  the  duty  of  the  general 
storekeeper  or  other  officer  to  notify  the  purchasing 
agent  of  precise  requirements  as  to  deliveries  of  each 
article.  One  notification  may  serve  for  a  long  period 
of  production  or  several  notices  may  be  given  from  time 
to  time  as  required.  In  many  companies,  however,  the 
detailed  schedule  of  production,  supported  by  material 
lists,  specifications  and  blue-prints,  is  all  that  the  pur- 
chasing agent  needs  to  schedule  his  deliveries,  provided 
he  is  promptly  notified  by  the  general  storekeeper  or 
other  officials  of  changes  in  plans  and  of  shortages. 

92 


DETERMINING  PURCHASE  REQUIREMENTS 

Public  Utilities.  The  particular  importance  of  coordi- 
nating deliveries  with  requirements  in  the  case  of  a  pub- 
lic utility,  such  as  a  railroad,  is  apparent.  The  stock 
of  each  item  of  materials  and  supplies  for  repairs,  oper- 
ation or  maintenance  must  be  kept  at  the  proper  quan- 
tity at  each  point  of  storage  and  use.  In  so  far  as  con- 
struction work  is  concerned,  such  as  the  construction 
of  new  bridges,  etc.,  the  problem  is  precisely  that  of  a 
construction  company.  In  so  far  as  standardized  mate- 
rials and  supplies  for  manufacture,  repair,  operation 
and  maintenance  are  concerned,  the  problem  is  one  of 
keeping  on  hand  a  minimum  stock  of  each  item,  this 
minimum  being  based  upon  past  consumption.  The 
minimum  must  vary  of  course  with  seasons,  the  repair 
season  on  a  railroad  on  passenger  coaches  being  much 
heavier,  for  example,  during  the  summer  than  in  the 
winter.  The  minimum  stock  of  materials,  supplies  and 
equipment  on  hand  must  also  vary  with  market  condi- 
tions, and  for  this  information  the  purchasing  agent 
must  be  consulted.  On  almost  all  railroads  the  respon- 
sibility of  keeping  on  hand  at  the  several  division  stores 
and  at  sub-stores  and  at  work  points  an  adequate  stock 
of  each  item  is  located  in  the  division  storekeeper  un- 
der the  supervision  of  the  general  storekeeper.  Infor- 
mation as  to  special  items  needed  at  any  point  the  di- 
vision storekeeper  must  secure  by  requisitions  from  and 
conference  with  the  proper  authorities  in  the  operating, 
mechanical  or  other  departments.  Information  as  to 
regular  stock  items  he  secures  from  a  monthly  review 
of  his  stock  book.  As  an  example  of  a  railroad  division 
stock  book  that  of  the  Rock  Island  Railroad  may  be 
described.  A  line  is  provided  for  each  item  (the  items 
being  named  and  classified  according  to  the  standard 
classification  of  the  Railway  Storekeepers'  Association). 

93 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

With  respect  to  each  item  there  is  indicated  the  aver- 
age monthly  and  six-monthly  consumption;  and  then^ 
for  each  of  the  six  months  provided  for  on  the  page, 
the  quantity  on  hand,  the  quantity  due  on  purchase  or- 
der and  not  yet  delivered,  the  quantity  due  out  on  un- 
filled stores  requisitions,  the  quantity  on  hand  in  excess 
of  requirements,  and  the  quantity  for  which  purchase 
requisition  has  been  made.  The  carbon  copy  of  this 
stock  ledger  is  divided  into  strips  by  months  and  the 
strips  are  sent  monthly,  as  a  page  is  completed  by  the 
division  storekeeper  in  his  monthly  survey  of  stock,  to 
the  general  storekeeper.  The  general  storekeeper  trans- 
fers the  information  thereon  to  a  master  or  line  stock 
book  for  the  entire  Rock  Island  system,  showing  quan- 
tities on  hand  and  surplus  of  each  item  at  each  division 
store  and  at  each  of  the  larger  sub-stores.  This  master 
or  line  stock  book  also  shows  monthly  consumption  for 
each  item.  By  this  line  or  master  stock  book,  which 
includes  a  record  for  six  succeeding  months,  the  general 
storekeeper  is  able  to  determine  whether  or  not  quan- 
tities on  hand  at  each  point  are  sufficient  to  meet  prob- 
able requirements  or  whether  it  is  possible  to  make  trans- 
fers of  excess  stock  from  one  point  to  meet  require- 
ments at  another.  The  principle  of  this  plan  of  con- 
centrating in  the  general  storekeeper  all  responsibility 
for  the  quantities  on  purchase  requisitions  and  for  re- 
ducing them  to  a  minimum  by  arranging  transfers  is 
followed  by  the  great  majority  of  railroads  in  this 
country.  The  railroad  general  storekeeper  is  thus  on 
most  railroads  a  coordinator  of  all  purchase  require- 
ments for  standard  items,  determining  the  proper 
amount  to  maintain  as  a  minimum  stock,  determining 
whether  requisitions  for  stock  may  be  met  by  transfer, 

94 


DETERMINING  PURCHASE  REQUIREMENTS 

and  submitting  all  necessary  purchase  requisitions  to  the 
purchasing  department. 

Public  Institutions.  As  a  general  thing  the  problem 
of  coordinating  deliveries  with  requirements  is  not  very- 
complex  in  governmental  institutional  departments. 
Requirements  are  chiefly  of  well  standardized  supplies, 
materials  or  equipment,  such  as  food  supplies,  clothing, 
coal,  lubricants,  hospital  and  laboratory  supplies.  It  is 
the  usual  practice,  and  one  which  should  work  well  un- 
der normal  conditions,  to  establish  a  minimum  for  each 
item  kept  in  stock  and  to  order  the  proper  quantity  when 
this  minimum  has  been  reached.  The  proper  quantity  to 
order  must  depend  upon  work  immediately  anticipated, 
that  is,  whether  or  not  the  normal  requirements  must  be 
exceeded  or  decreased,  and  upon  market  conditions. 
For  the  latter  information,  as  in  all  other  industries, 
the  advice  of  the  purchasing  agent  is  indispensable. 
The  frequency  of  need  for  each  item  and  the  quantities 
at  each  delivery  are  normally  very  easily  determined 
by  an  institutional  department.  Seasonal  variations, 
which  are  for  the  most  partly  easily  anticipated,  occur 
in  the  extent  of  the  work  of  such  institutions,  as  in  the 
case  of  a  hospital  where  the  requirements  for  treating 
certain  classes  of  patients  are  the  heaviest  during  the 
winter,  or,  as  in  the  case  of  a  corrective  institution, 
where  the  requirements  for  housing  and  feeding  pris- 
oners are  heaviest  during  the  winter  season.  Varia- 
tions not  easy  to  foresee  also  occur  as  a  result  of  epi- 
demics in  the  case  of  hospitals,  or  so-called  waves  of 
crime  in  the  case  of  corrective  institutions.  A  further 
element  to  be  considered  in  the  purchase  of  certain 
articles  for  institutions  is  the  matter  of  seasonableness 
of  supply.  This  is  true  chiefly  in  the  purchase  of  food- 
stuffs and  of  clothing.     In  the  case  of  foodstuffs  it  is 

95 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

the  duty  of  the  dietitian  to  determine,  in  cooperation 
with  the  purchasing  agent,  the  seasons  during  which 
each  article  may  be  suppHed.  In  the  case  of  clothing 
this  responsibility  is  variously  located,  with  the  matron, 
with  the  superintendent,  with  the  general  storekeeper 
or  some  other  administrative  officer.  In  the  case  of  fuel 
the  responsibility  is  usually  left  to  the  chief  engineer 
to  determine  during  what  months  the  requirements  will 
be  heaviest  and  what  quantities  will  be  needed  at  each 
delivery.  In  the  case  of  drugs  and  medicines  and  other 
hospital  and  laboratory  supplies,  the  responsibility  is 
usually  placed  upon  the  chief  chemist  or  druggist. 

There  is  probably  not  an  institutional  department  in 
any  city  or  state  government  which  concentrates  respon- 
sibility for  determining  frequency  of  delivery,  quan- 
tities at  each  delivery,  and  minimum  and  maximum 
quantities  of  each  item  to  be  kept  on  hand  at  each  store 
to  the  same  extent  that  similar  responsibility  is  concen- 
trated in  the  general  storekeeper  of  a  manufacturing 
company  or  a  railroad.  The  result  is  that  the  purchas- 
ing agent  must  look  to  a  great  number  of  persons  for 
the  necessary  information  to  regulate  the  flow  of  de- 
liveries from  dealers  to  points  where  articles  are  to 
be  used  or  stored.  It  is  desired  at  this  point  to  give 
very  briefly  some  of  the  elements  of  the  plan  which  is 
now  being  developed  in  New  York  City  for  securing  the 
necessary  control  over  the  frequency  and  quantity  of 
deliveries. 

In  the  health  department,  where  an  installation  of  the 
system  is  being  made,  it  is  the  plan  to  centralize  re- 
sponsibility in  a  general  storekeeper  whose  authority 
shall  extend  over  storekeepers  in  the  department  and 
who  shall,  therefore,  have  authority  to  revise  quantities 
to  be  kept  on  hand  at  each  store  and  arrange  transfers 

96 


DETERMINING  PURCHASE  REQUIREMENTS 

of  quantities  as  between  stores^    It  is  planned  that  all 
points  of  use  shall  make  requisition  upon  the  sub-stores 
which  shall,  as  a  general  rule,  keep  on  hand  a  month's 
supply.    Each  storekeeper  of  a  sub-store  shall  maintain 
a  stock  card  for  each  item,  which  indicates  a  minimum 
and  a  maximum  and  which  shows  quantities  received, 
quantities  issued  and  balance  on  hand  at  any  time.     It 
is  intended  that  this  stock  card  shall  be  posted  imme- 
diately after  each  receipt  or  issue  and,  therefore,  be  kept 
strictly  up  to  date.    Monthly  requisitions  on  the  depart- 
mental general  storekeeper  must  be  prepared  to  main- 
tain the  stock  between  the  established  minimum  and 
maximum.      The    general    storekeeper    similarly    must 
maintain  a  month's  stock  and  keep  it  replenished  between 
the  established  minimum  and  maximum,  as  shown  on 
his  stock  cards,  by  monthly  requisitions  on  the  purchas- 
ing agent.    So,  also,  the  general  storekeeper  will  trans- 
fer to  purchase  requisitions  items  required  by  the  sub- 
storekeeper  which  he  does  not  keep  in  stock,  but  on 
which  direct  deliveries  are  to  be  made  to  the  sub-stores 
or  to  points  of  use.    The  minimum  and  maximum  fig- 
ures on  the  stock  cards  of  the  general  storekeeper  must 
of  course  vary  not  only  with  the  departmental  require- 
ments but  with  general  market  conditions,  and  to  this 
end  there  must  be  close  coordination  between  the  de- 
partmental storekeeper  and  the  purchasing  agent.     It 
is  not  planned  that  the  departmental  general  storekeeper 
shall  maintain  a  master  stock  book  similar  to  the  mas- 
ter stock  book  of  the  railroad  in  order  that  he  may  de- 
termine therefrom  quantities  in  excess  of  requirements 
and  arrange  transfers  of  stock  from  store  to  store. 
These  purposes  are  to  be  met  by  a  monthly  stock  re- 
port showing  for  each  item  the  quantity  on  hand  at  the 
beginning  of  the  period,  the  quantity  received  during  the 

97 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

period,  the  quantity  issued  during  the  period,  the  quan- 
tity on  hand  at  the  end  of  the  period,  the  quantity  on 
order  but  not  yet  received,  the  average  monthly  con- 
sumption and  the  minimum  and  maximum  figures  es- 
tablished for  the  item  at  the  store  submitting  the  report. 
When  responsibility  for  all  matters  pertaining  to 
stores  and  for  the  preparation  of  purchase  requisitions 
is  concentrated  in  this  manner  in  the  general  storekeeper 
in  the  institutional  departments  of  New  York  City,  the 
purchasing  agent  will  have  but  one  person  to  look  to  for 
all  information  relative  to  the  frequency  and  quantity 
of  deliveries.  This  will  replace  procedure  which  has 
resulted  in  delay,  in  overstocks,  in  shortages  at  critical 
periods  and,  most  important  of  all,  in  lack  of  definite 
location  of  responsibility.  It  will  no  longer  be  possible 
for  officers  and  employees  to  shift  the  blame  for  short- 
ages or  overstocks.  It  will,  on  the  other  hand,  be  the 
greatest  possible  help  for  systematizing  the  timely  sub- 
mission of  all  purchase  requisitions  to  the  purchasing 
agent. 


CHAPTER  VI 

DETERMINING   CURRENT   MARKET   CONDI- 
TIONS AND  TENDENCIES 

An  understanding  of  the  general  business  situation, 
as  well  as  a  knowledge  of  the  sources  of  supply,  the  in- 
dustrial conditions  and  the  methods  of  manufacture  in 
the  field  of  each  class  of  possible  purchases,  is  essential 
to  a  purchasing  agent. 

In  determining  whether  to  start  new  undertakings  or 
to  curtail  those  already  started,  a  knowledge  of  market 
conditions  is  of  course  indispensable.  The  advice  of  the 
purchasing  agent  is  of  far  greater  importance,  in  so 
far  as  planning  future  work  of  the  industry  is  concerned, 
in  a  manufacturing  company  or  on  a  railroad  than  in  the 
majority  of  governmental  departments.  In  the  latter, 
undertakings  must  be  continued,  as  a  rule,  no  matter 
what  changes  may  occur  in  market  conditions.  But 
even  in  governmental  departments  there  is  often  a  de- 
gree of  flexibility  possible  in  planning  future  work ;  for 
example,  in  planning  new  construction  it  is  often  pos- 
sible to  postpone  such  work  until  market  conditions  are 
favorable. 

The  purchasing  agent  of  a  public  institution  or  of  an 
institutional  department  of  a  government  is  not  usually 
a  member  of  the  board  or  executive  committee  deter- 
mining policies  of  such  institution  or  department.  His 
advice  is  frequently  sought,  however,  with  reference  to 
whether  or  not  a  new  undertaking  shall  be  started  or 
old  ones  curtailed  in  view  of  present  or  anticipated  mar- 

99 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ket  conditions.  Knowledge  of  the  general  business  sit- 
uation is,  therefore,  essential  to  such  a  purchasing 
agent,  though  to  a  lesser  degree  than  to  a  purchasing 
agent  who  is  a  member  of  an  executive  committee  of  an 
industrial  corporation.  As  a  means  of  guiding  him  in 
interpreting  conditions  in  the  field  of  each  class  of  pur- 
chase, knowledge  of  the  general  business  situation  is 
just  as  essential  to  the  purchasing  agent  of  a  govern- 
ment institutional  department  as  to  any  other  purchas- 
ing agent,  provided  he  has  any  freedom  of  choice  as  to 
method  or  time  of  purchase. 

Those  aspects  of  the  general  business  situation  with 
which  the  purchasing  agent  should  keep  in  touch  em- 
brace general  financial  conditions  and  tendencies — bank 
deposits,  loans,  the  availability  of  call  money,  etc. ;  crop 
conditions,  particularly  as  respects  the  wheat  and  other 
basic  crops;  political  conditions,  including  prospects  of 
war  or  peace,  as  well  as  prospects  of  changes  in  a  policy 
with  reference  to  tariffs,  transportation  control  and 
rates,  etc.;  labor  conditions  and  transportation  condi- 
tions. 

The  necessity  to  the  purchasing  agent  of  a  detailed 
knowledge  of  market  conditions  affecting  the  particular 
articles  purchased  by  him  is  self-evident.  In  determin- 
ing whether  it  is  more  economical  to  buy  a  given  article 
or  to  make  it,  knowledge  of  market  conditions  and  ten- 
dencies is  of  especial  importance  in  a  productive  in- 
dustry. Thus,  in  a  public  charitable  or  corrective  in- 
stitution the  purchasing  agent's  knowledge  of  market 
conditions  and  tendencies  must  be  availed  of  in  deter- 
mining such  questions  as  whether  the  institution  shall 
make  its  own  soap  or  buy  it,  whether  it  shall  roast  its 
own  coffee  or  buy  it  ready  for  use,  whether  it  shall  make 
its  own  garments  or  buy  them  ready  made.    Knowledge 

ICO 


DETERMINING  CURRENT  MARKET  CONDITIONS 

of  market  conditions  and  tendencies  may  be  at  any  time 
necessary  in  adopting  means  to  defeat  a  combination 
and  to  bring  prices  back  to  their  normal  competitive 
level.  It  is  continuously  needed  in  deciding  upon  the 
best  time  to  purchase ;  in  determining  whether  or  not  it 
is  best  to  adhere  to  specifications  prepared  for  normal 
market  conditions;  in  determining  what  shall  be  the 
contents  of  these  specifications,  i.  e.,  whether  they  shall 
be  broad  or  restrictive;  and  in  deciding  at  any  given 
time  what  terms  and  conditions  of  bidding  and  of  pur- 
chase agreements  will  stimulate  competition  to  the  high- 
est degree  and  what  terms  and  conditions  will  stifle  it. 

Without  knowledge  of  market  conditions  and  ten- 
dencies adequate  to  determine  the  questions  which  have 
been  stated  in  brief,  there  can  be  no  skilled  purchasing. 
Purchasing  without  such  knowledge  of  market  condi- 
tions and  without  adaptation  of  the  method  of  inviting 
bids,  form  of  invitation)  form  of  purchase  agreement, 
etc.,  to  such  market  conditions  is  a  mere  clerical  func- 
tion. 

It  is  often  stated  that  adaptation  of  the  method  of 
purchase  to  market  conditions  involves  the  speculative 
element.  In  one  of  our  largest  industrial  companies  the 
management  forbids  the  purchasing  agent  to  gamble 
with  markets  in  making  his  decisions  as  to  method  and 
time  of  purchase.  It  is  true,  obviously,  in  any  phase  of 
business,  whether  it  be  public  or  private,  that  any  deci- 
sions in  purchasing  based  upon  changing  market  con- 
ditions and  upon  hopes  or  expectations  for  the  future 
must  involve  a  degree  of  speculation.  No  conclusions 
in  any  phase  of  business  may  be  based  upon  absolute 
certainty  and  the  best  that  can  be  done  is  to  weigh  pos- 
sibilities one  against  the  other.  When  the  management 
of  a  productive  plant  forbids  its  purchasing  agent  to 

lOI 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

gamble  with  markets,  it  most  certainly  does  not  mean 
to  preclude  his  buying  in  bulk  against  an  apparent  cer- 
tainty of  a  shortage  or  of  increased  prices.  In  short, 
there  is  a  distinction  between  speculative  buying  and  the 
exercise  of  foresight.  With  speculative  buying  the  pur- 
chasing agent  of  a  productive  industry  or  of  a  railroad 
obviously  has  no  concern.  If  the  management  wishes 
to  gamble  with  future  prospects,  the  determination  is 
for  the  executive  committee,  not  for  the  purchasing 
agent.  Much  less  should  the  purchasing  agent  for  a 
government  be  a  speculative  buyer.  The  mere  fact  that 
he  has  a  mere  possibility  of  beating  the  market  by  timely 
purchase  does  not  justify  him  in  taking  the  risk  in- 
volved. But  if  there  is  a  probability  that  by  timely  pur- 
chase in  bulk  considerable  money  may  be  saved  by  rea- 
son of  apparently  certain  shortages  or  increased  prices, 
the  purchasing  agent  is  not  worthy  of  the  name  if  he 
does  not  take  advantage  of  his  opportunity. 

The  detailed  knowledge  of  conditions  in  the  field  of 
each  class  of  purchase  which  the  purchasing  agent  must 
have  falls  under  the  following  heads: 

1.  Sources  of  supply. 

2.  Kinds  of  articles  in  the  market  to  meet  each  need. 

3.  Knowledge  of  current  market  prices. 

4.  Processes  of  manufacture. 

It  will  be  of  value  to  examine,  with  respect  to  each  of 
these  classes  of  information,  the  sources  from  which 
it  is  usually  obtained  and  the  manner  in  which  it  is  com- 
monly recorded  by  purchasing  agents. 

Sources  of  Supply.  Readily  available  information  as  to 
sources  of  supply,  while  always  necessary,  is  especially 

102 


DETERMINING  CURRENT  MARKET  CONDITIONS 

useful  in  an  emergency  when  the  usual  sources  of  supply 
have  combined  or  are  short. 

The  sources  of  information  of  this  kind  are  salesmen, 
advertisements,  catalogues,  trade  journals,  and  appli- 
cation by  dealers  to  be  listed  as  vendors  of  particular 
articles. 

To  preserve  a  record  of  this  information  the  General 
Electric  Company  maintains  a  card  record.  On  a  card 
for  each  specific  item  are  entered  the  name  and  address 
of  dealers  supplying  that  item.  This  card  record  is  used 
as  a  mailing  list  in  calling  for  bids,  etc.  A  so-called 
"term  record"  also  maintained  by  this  company  con- 
tains on  a  card  for  each  vendor  his  terms  as  to  pay- 
ments and  his  promise  as  to  delivery  on  each  class  of 
article  which  he  undertakes  to  furnish. 

Articles  in  the  Market  to  Meet  Each  Need.  For  infor- 
mation with  reference  to  the  particular  articles  in  the 
market  suitable  to  meet  each  need  of  the  organization 
for  which  he  purchases,  the  purchasing  agent  must  of 
necessity  rely  to  a  large  extent  on  his  personal  experi- 
ence. It  is  knowledge  which  he  picks  up  from,  a  thou- 
sand sources  in  his  daily  work.  This  information  is 
necessary  not  only  as  to  the  best  item  to  meet  each  need, 
but  also  as  to  the  possible  range  of  choice  which  should 
be  left  open  in  seeking  competition  and  which  should  be, 
therefore,  included  within  the  scope  of  a  specification. 
A  further  necessity  for  such  information  arises  in  emer- 
gencies when  the  market  for  the  items  ordinarily  used 
may  be  entirely  shut  or  prices  abnormally  high.  For 
example,  it  is  apt  to  be  of  far  more  than  academic  im- 
portance for  the  purchasing  agent  to  know  that  cer- 
tain chemical  cleansers  will  do  practically  the  same  work 
as  soap  and,  in  fact,  are  preferred  by  some  for  many 

103 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

purposes  usually  served  by  soaps.  The  possession  of 
such  information  by  the  purchasing  agent  or  by  his 
skilled  specialists,  if  the  range  of  purchases  of  the  de- 
partment be  large,  is  often  an  important  point  of  dis- 
tinction between  a  purchasing  department  of  a  private 
corporation  and  a  governmental  purchasing  department 
or  office.  Governments  have  recently  tended  toward 
settling  upon  a  definite  article  for  each  need  and  adher- 
ing thereto  even  in  times  of  scarcity  or  of  high  prices. 
The  specialists  of  a  purchasing  department  of  a  large 
private  corporation,  on  the  other  hand,  often  have  care- 
fully tabulated  detailed  information  concerning  many 
items  to  meet  each  important  need.  This  enables  them 
to  know  exactly  what  to  do  in  an  emergency  which 
shuts  off  or  raises  the  price  on  the  article  which  they 
usually  purchase.  Realizing  this,  dealers  are  warned 
that  combinations  in  restraint  of  valid  competition  are 
apt  only  to  result  in  the  purchasers  turning  to  a  sub- 
stitute article. 

The  sources  of  information  as  to  what  articles  are  in 
the  market  to  meet  each  need  are  several.  They  in- 
clude dealers'  catalogues,  advertisements,  newspaper 
articles,  and  conversations  of  salesmen.  The  modern 
purchasing  agent,  as  a  rule,  welcomes  the  salesman  as 
a  mine  of  information  and  gives  to  him  all  possible  time. 
By  judicious  questioning  the  purchasing  agent  and  his 
expert  buyers  are  able  to  acquire  a  fund  of  informa- 
tion with  reference  to  each  article  which  compares  fa- 
vorably with  that  possessed  by  the  most  skillful  among 
the  salesmen  themselves.  The  modern  purchasing  agent 
also  finds  it  profitable  to  investigate  what  precise  ar- 
ticles are  being  used  to  meet  similar  needs  in  other 
companies. 

The  records  of  the  articles  in  the  market  to  meet  each 

104 


DETERMINING  CURRENT  MARKET  CONDITIONS 

need  consist,  as  a  general  thing,  of  catalogues  and  of 
samples.  There  is  no  need  of  detailing  here  the  best 
method  of  handling  dealers'  catalogues.  They  are  us- 
ually kept  in  a  catalogue  library  according  to  size.  All 
catalogues,  including  small  pamphlets,  are  bound  in  stiff 
covers  or  enclosed  in  book  size  boxes.  The  index  to 
this  catalogue  library  is  sometimes  included  on  the  price 
list.  When  a  separate  index  is  provided,  one  card  is 
used  for  the  name  of  the  item  and  includes  the  names 
and  addresses  of  all  dealers  therein,  with  a  reference 
to  the  file  numbers  of  their  catalogues,  and  the  other 
card  is  used  for  the  name  and  address  of  each  dealer, 
with  a  reference  to  the  file  numbers  of  his  catalogues, 
and  thereunder  the  classes  of  items  included  within  the 
catalogues. 

On  the  back  of  the  price  cards  of  the  J.  I.  Case 
Threshing  Machine  Company  of  Racine,  Wisconsin, 
space  is  provided  for  general  information  and  here 
the  purchasing  agent  and  his  expert  buyers  usually  re- 
cord information  relative  to  possible  substitutions  for 
the  article  in  question.  This  information  is  used  in  the 
preparation  of  the  next  contract  for  the  item  or  for  a 
substitute  therefor. 

Current  Market  Prices.  By  current  market  prices  is 
meant  either  prices  quoted  to  the  purchasing  agent  to 
meet  specific  needs,  or  prices  quoted  in  the  general  mar- 
ket and  published  in  newspapers,  trade  journals  or  price 
lists. 

Prices  bid  or  quoted  must  be  compiled  by  the  pur- 
chasing agent  and  put  in  such  shape  as  to  be  readily 
available  for  comparing  prices  bid  under  similar  con- 
ditions of  time,  quantity,  delivery,  nature  of  the  pur- 
chase agreement,  basis  of  award,  etc.     This  is  essen- 

105 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tial  in  order  that  the  purchasing  agent  may  determine 
what  is  the  best  method  and  time  of  purchasing  or  con- 
tracting for  each  article.  For  example,  it  is  necessary 
for  a  purchasing  agent  of  a  public  institution  to  know 
what  prices  have  been  bid  or  quoted  on  beef  when  it 
was  bought  by  the  cut  as  against  the  price  bid  or  quoted 
when  it  was  bought  by  the  carcass  or  quarter.  Again, 
in  the  purchase  of  beef  it  is  necessary  for  the  purchas- 
ing agent  to  know  the  difference  in  price  procurable  by 
means  of  a  purchase  for  immediate  delivery  in  bulk  as 
against  the  price  procurable  for  time  to  time  deliveries. 
It  is  also  necessary  in  determining,  in  the  case  of  an 
agreement  for  time  to  time  deliveries,  what  is  the  best 
length  of  period  for  such  an  agreement,  or  whether 
it  is  better  to  fix  therein  a  definite  quantity  or  to  ask 
the  dealer  to  deliver  more  or  less,  in  accordance  with 
requirements. 

Of  especial  importance  to  a  purchasing  agent  is  the 
knowledge  procurable  from  readily  available  records  of 
current  prices  bid  or  quoted  as  to  the  best  season  to  buy 
or  to  contract  for  each  specific  item.  Success  in  this 
respect  is  a  matter  of  just  pride  to  the  United  States 
Navy.  Records  of  prices  bid  or  quoted  must  obviously 
be  in  such  detail  as  to  readily  make  possible  the  compari- 
sons between  the  several  methods  and  conditions  of  pur- 
chase open  to  choice  by  a  purchasing  agent.  To  this 
end  it  is  necessary  that  price  records  shall  be  distinct 
for  each  separate  item,  that  account  shall  be  taken  of 
every  element  which  affects  price,  and  that  the  descrip- 
tions given  of  the  items  themselves  shall  be  very  definite 
and  complete.  Price  records  which  do  not  go  down  to 
the  last  detail  of  description  necessary  for  comparisons 
are  practically  worthless  and  a  waste  of  time. 

A  good  example  of  the  form  records  of  prices  bid  or 

1 06 


DETERMINING  CURRENT  MARKET  CONDITIONS 

quoted  kept  by  representative  industrial  companies,  rail- 
roads and  governments  is  that  maintained  by  the  Gen- 
eral Electric  Company.  A  "price  card"  is  maintained 
for  each  specific  item,  its  name  and  description,  specifi- 
cation and  class  number  being  referred  to  at  the  top, 
and  the  cards  being  filed  according  to  the  basic  classi- 
fication under  which  the  work  of  the  purchasing  depart- 
ment is  divided  among  specialists.  The  card  shows  all 
quotations  on  the  given  article.  On  the  lower  third  of 
the  card  space  is  provided  under  columnar  headings  for 
reference  to  ordering  directions  sent  to  the  several  fac- 
tories and  offices  of  the  company.  A  "supplementary 
record"  card  is  used  where  detailed  descriptions,  re- 
marks as  to  terms,  etc.,  are  required.  This  supplemen- 
tary form  is  filed  just  behind  the  regular  card  to  which 
it  relates.  These  cards  are  posted  from  the  records  of 
purchase  deals  or  transactions  before  these  are  sent  to 
files.  They  are  kept  strictly  up  to  date  and  are  con- 
stantly used  for  reference  by  the  buyers  and  by  invoice 
checkers. 

Provision  is  made  on  the  card  for  entering  references 
to  the  general  purchasing  department  file,  which  in- 
cludes all  the  papers  involved  in  a  purchase  transaction. 
This  file  includes  all  bids  from  dealers  of  a  given  trans- 
action and  any  correspondence  relating  thereto.  It, 
therefore,  serves  as  the  source  of  information  of  any 
special  conditions  referred  to  on  the  regular  price  cards. 

Information  as  to  prices  current  quoted  in  the  gen- 
eral market  is  of  course  necessary  in  order  to  check  up 
the  reasonableness  of  prices  bid.  For  example,  a  large 
purchaser  of  forage  might  have  reason  to  suspect  that 
a  combination  had  been  formed  to  apportion  business 
and  thereby  stifle  competition.  One  means  of  deter- 
mining whether  or  not  this  suspicion  is  correct  is  com- 

107 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

parison  of  prices  bid  with  prices  quoted  in  the  general 
market.  A  further  and  more  important  reason  for  the 
necessity  of  recording  prices  current  quoted  in  the  gen- 
eral market  is  to  determine  the  best  time  and  method 
of  purchasing  each  item  both  under  normal  and  abnor- 
mal market  conditions.  For  example,  in  the  purchase  of 
hemp  a  careful  recording  of  prices  current  quoted  in  the 
general  market  shows  that  the  fall  is  the  best  time  to 
buy.  It  is  not  necessary  to  keep  a  record  of  prices  cur- 
rent on  any  but  the  chief  items,  but  it  is  of  particular 
importance  to  keep  a  record  on  items  which  serve  as  a 
base  for  the  price  of  others.  Thus,  certain  items  will 
change  in  price  mainly  with  fluctuations  in  the  price  of 
copper,  others  with  fluctuations  in  the  price  of  steel. 
For  an  institution  purchasing  vast  quantities  of  food 
supplies,  such  as  the  United  States  Navy  or  Army  or 
the  institutional  departments  of  New  York  City,  records 
of  prices  current  quoted  in  the  general  market  on  all 
important  foodstuffs  are  essential  to  a  proper  deter- 
mination of  the  best  time  and  method  of  purchasing 
each.  Information  as  to  prices  current  quoted  in  the 
general  market  is  procurable  in  trade  journals,  in  cata- 
logues and  dealers'  trade  lists,  and  among  the  commod- 
ity prices  in  newspapers. 

New  York  City  has  been  for  the  past  five  years  en- 
gaged in  compiling  a  record  of  prices  current  quoted 
in  the  general  market  on  the  most  important  of  its  food 
supplies,  its  clothing,  its  paints,  metals  and  other  im- 
portant purchases.  This  record  has  not  been  continu- 
ous, however,  but  the  information  collected  has  shown 
the  value  of  such  a  record  on  the  most  important  pur- 
chases both  as  a  means  of  comparison  with  prices  ac- 
tually bid  and  as  a  means  of  determining  what  is  the 
best  time  and  method  of  purchase.    Such  a  record  when 

io8 


DETERMINING  CURRENT  MARKET  CONDITIONS 

kept  on  a  great  number  of  items  requires  a  great  deal 
of  time  and  it  is  probable  that  it  will  pay  only  in  the 
case  of  the  items  of  basic  importance,  i.  e.,  items  which 
serve  as  the  base  for  the  price  of  other  items,  for  ex- 
ample, white  lead,  linseed  oil,  copper,  brass,  beef-car- 
cass, mutton  and  pork,  rather  than  particular  items  such 
as  white  lead  in  oil,  copper  wire,  steel  pipe,  beef  fore 
quarters,  pork  loins,  etc. 

Processes  of  Manufacture.  Information  relative  to  the 
processes  of  manufacture  and  production,  and  condi- 
tions and  tendencies  affecting  supply  is  necessary  for  the 
purchasing  agent  in  order  that  he  may  know  when  mar- 
ket changes  are  likely  to  affect  each  article  and  precisely 
how.  '  For  example,  knowledge  that  a  certain  chemical 
is  used  in  the  processing  of  a  given  article  puts  the  pur- 
chasing agent  in  a  position  to  know  that  any  shortage 
of  this  chemical  will  affect  the  price  of  the  material. 
This  information  is  also  necessary  in  drawing  specifi- 
cations in  order  that  the  purchasing  agent  may  elimi- 
nate from  specifications  any  provisions  which  he  knows, 
from  his  knowledge  of  processes  of  manufacture,  will 
be  unreasonably  severe  and  will  unnecessarily  restrict 
competition.  In  respect  to  specifications,  knowledge  of 
process  of  manufacture  or  production  also  enables  the 
purchasing  agent  to  know  whether  specifications  are  un- 
reasonably rigid  in  cases  where  the  natural  forces  in- 
volved in  the  process  of  manufacture  or  production 
make  it  necessary  that  the  specification  should  allow  for 
certain  latitude.  Information  of  process  of  manufac- 
ture or  production  in  the  field  of  each  class  of  items 
purchased  and  of  any  special  industrial  conditions,  trans- 
portation conditions,  or  increased  demand,  pertaining  to 
each  class  of  purchases,  is  of  especial  importance  to  the 

109 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

purchasing  agent  to  place  him  in  a  position  to  enforce 
purchase  agreements.  Equipped  with  this  information 
the  purchasing  agent  can  see  through  a  dealer's  or  man- 
ufacturer's excuses  for  non-delivery  and  know  whether 
or  not  they  are  valid.  Obviously  in  a  purchasing  de- 
partment with  many  thousands  of  items  to  be  purchased 
it  is  impossible  for  the  purchasing  agent  himself  to  se- 
cure detailed  information  of  processes  of  manufacture, 
etc.,  relative  to  each  item.  Therein  as  well  as  in  the 
collection  of  numerous  other  details  of  information  rela- 
tive to  markets,  sources  of  supply,  etc.,  the  division  of 
the  work  of  the  purchasing  office  among  specialists  be- 
comes of  the  highest  importance.  Each  specialist  is  able 
to  gather  for  himself,  at  least  in  regard  to  each  of  the 
most  important  items  which  he  purchases,  full  informa- 
tion in  regard  to  the  process  of  manufacture,  constitu- 
ent materials,  normal  and  abnormal  demand,  labor  and 
transportation  conditions,  and  any  other  conditions 
likely  to  affect  the  price  or  supply.  The  sources  of  his 
information  are  chiefly  trade  journals,  scientific  maga- 
zines, encyclopedias,  conversations  with  salesmen  and 
personal  investigations.  It  is  possible  for  each  specialist 
to  become  so  skilled  in  his  field  of  purchases  that  he  is 
able  to  meet  on  a  footing  of  practical  equality  of  knowl- 
edge the  manufacturers  of  each  of  his  most  important 
items.  The  steel  expert  in  the  purchasing  department 
of  a  great  corporation  engaged  in  the  manufacture  of 
agricultural  implements  has  the  reputation  of  being  one 
of  the  shrewdest  purchasers  of  steel  in  the  United 
States.  His  information  includes  processes  of  manu- 
facture, supply  and  demand,  transportation,  labor  con- 
ditions and  every  other  element  that  enters  into  the  steel 

industry. 

no 


DETERMINING  CURRENT  MARKET  CONDITIONS 

This  information  obviously  can  hardly  be  reduced  to 
writing  except  in  so  far  as  it  is  included  in  detailed 
specifications.  It  must  be  recorded  in  the  experience  of 
the  specialists  in  each  field  of  purchase. 


CHAPTER  VII 

ELEMENTS  ESSENTIAL  TO  SECURING  THE 
FULLEST  COMPETITION 

With  complete  and  timely  information  before  him 
as  to  the  precise  nature  of  the  purchase  needs  for  which 
he  must  provide,  and  equipped  with  an  adequate  fund 
of  knowledge  of  the  general  business  situation  and  of 
current  market  conditions  and  tendencies,  the  purchas- 
ing agent  is  ready  to  function  as  a  responsible  executive ; 
without  it  his  work  can  be  merely  clerical;  for  it  is  in 
the  light  of  this  knowledge  that  the  real  purchasing 
agent  must  decide  on  the  method  of  purchasing  each 
item  which  will  bring  the  best  results  in  prices  and  in 
deliveries.  He  has  before  him  the  requirements  of  his 
organization  as  a  user  of  articles  purchased.  It  now 
becomes  his  responsibility  to  reconcile  these  require- 
ments with  the  conditions  and  preferences  of  the  trade 
so  that  the  fullest  competition  among  dealers  may  be 
stimulated.  No  purchasing  agent  is  exempt  from  the 
difficult  decisions  which  this  reconciliation  involves, 
whether  his  purchases  be  great  or  small  or  whatever 
be  the  nature  of  his  purchases.  A  purchaser  for  a  gov- 
ernment institutional  department  is  under  as  great  ne- 
cessity of  making  such  reconciliation  between  his  re- 
quirements and  the  requirements  of  the  trade  as  is  a 
purchasing  agent  for  a  constructing  or  manufacturing 
company  or  for  a  railroad.  No  purchasing  can  be  done 
to  advantage  mechanically  and  without  the  exercise  of 
judgment  on  every  detailed  problem. 

112 


ELEMENTS  ESSENTIAL  TO  COMPETITION 

The  vendor's  point  of  view  is  never  to  be  lost  sight 
of  by  the  modern  efficient  purchasing  agent.  He  knows 
well  from  his  knowledge  of  market  conditions  that  he 
would  pay  dearly  should  he  adopt  for  all  occasions  the 
attitude  that  vendors  can,  as  they  see  fit,  take  or  leave 
his  offerings  in  the  form  in  which  it  suits  him  to  pre- 
sent them.  He  knows,  however,  that  there  are  times 
when  such  an  attitude  in  unavoidable,  that  his  require- 
ments must  be  so  rigidly  adhered  to  as  to  permit  of  no 
latitude  in  bidding  and  no  reconciliation  with  the  best 
interests  of  the  vendors. 

It  is  intended  that  the  analysis  here  given  of  the  deal- 
er's point  of  view  shall  be  suggestive  rather  than  com- 
prehensive. Any  purchasing  agent  and  any  dealer  or 
manufacturer  could  suggest  elements  which  would  stim- 
ulate competition  in  addition  to  those  included  in  this 
analysis.  The  desire  to  continue,  even  at  a  small  profit, 
satisfactory  business  relations,  which  may  be  largely 
based  on  friendship,  may  and  frequently  does  in 
private  business  contravene  all  rules  of  competition. 
But  among  other  elements,  the  following  stand  out  as  of 
vital  importance  as  points  which  the  purchasing  agent 
must  consider  in  deciding  upon  a  method  of  inviting 
bids  which  will  secure  the  fullest  and  most  satisfactory 
competition : 

1.  Specifications  sufficiently  broad  to  admit  of  compe- 
tition on  all  adequate  articles  for  each  need. 

2.  Invitations  for  bids  containing  complete  informa- 
tion as  to  requirements. 

3.  The  elimination  of  the  speculative  element  in  bid- 
ding to  the  largest  possible  extent. 

4.  A  high  trading  reputation  of  the  purchaser  among 
vendors. 

113 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

5.  The  elimination  of  red  tape  to  the  largest  possible 
extent. 

6.  Attractiveness  of  quantities  and  delivery  condi- 
tions called  for. 

Specifications  Sufficiently  Broad  to  Admit  of  Competition. 

It  needs  no  elaboration  at  this  point  to  prove  that 
wide  competition  cannot  be  secured  unless  specifications 
be  sufficiently  broad.  Competition  in  bidding  means 
competition  not  only  in  prices  but  in  kind  and  quality  of 
articles  offered  and  delivery  service,  and  it  goes  with- 
out saying  that  if  wide  competition  is  desired  the  pur- 
chasing agent  cannot  afford,  unless  his  market  be  ex- 
ceedingly limited  in  suitable  articles,  to  narrowly  con- 
fine his  requirements  by  a  specification  which  includes 
but  a  very  small  part  of  such  articles. 

Completeness   of  Information  in  Invitation  for  Bids. 

Without  complete  information  in  invitations  for  bids, 
the  purchasing  agent  is  subject  to  criticism  by  vendors, 
on  the  ground  that  he  does  not  know  his  own  precise  re- 
quirements or  that  he  does  not  know  precisely  what  is 
in  the  market  to  meet  these  requirements.  Vendors  may 
of  course  secure  additional  information  by  personal  in- 
terviews with  the  purchasing  department,  or  by  inter- 
viewing those  who  are  to  receive  deliveries.  But  this 
verbal  information  is  more  than  likely  to  be  given  in 
most  varied  form  to  the  several  bidders.  The  inevitable 
result  is  trouble  on  deliveries,  resulting  often  in  litiga- 
tion. This  is  certain  to  react  upon  the  reputation  of  the 
purchaser  and  to  stifle  future  competition. 

Information  must  be  complete  in  invitations  for  bids 
as  to  the  precise  article  required,  i.  e.,  as  to  the  precise 
need  which  articles  delivered  must  meet.     This  is  not 

114 


ELEMENTS  ESSENTIAL  TO  COMPETITION 

inconsistent  with  the  necessity  that  specifications  be  suf- 
ficiently broad  to  admit  of  competition  on  all  adequate 
articles  for  each  need.  It  means  merely  that  to  the  full- 
est possible  extent  all  dealers  shall  be  furnished  with  in- 
formation as  to  precise  requirements  which  will  enable 
them  to  know  just  what  articles  they  are  desired  to  bid 
upon.    ' 

It  must  also  be  made  clear  in  invitations  for  bids 
whether  dealers  are  asked  to  bid  upon  definite  quanti- 
ties, frequency,  time  and  place  of  delivery,  or  upon  in- 
definite requirements  as  to  these  points. 

Complete  information  in  invitations  for  bids  is  neces- 
sary as  to  the  method  of  bidding,  as  to  the  form  of  bids 
and  technical  requirements  in  connection  with  bids,  and 
the  time  and  place  of  their  submission.  It  is  almost  cer- 
tain to  lose,  at  least  for  the  time,  the  competition  of  de- 
sirable bidders  if  such  bidders  find  that  their  bids  are 
not  considered  for  reasons  of  which  they  had  no  suf- 
ficient warning  in  the  invitation. 

Information  in  invitations  for  bids  must  be  complete 
as  to  the  basis  of  award.  In  short,  dealers  must  know 
in  order  properly  to  figure  their  prices  what  they  may 
count  upon  in  case  an  award  be  made  to  them.  For  ex- 
ample, the  dealer  has  no  adequate  basis  for  figuring  his 
overhead  charges  if  he  does  not  know  whether  an  award 
on  a  contract  for  supplies  is  to  be  made  by  the  item  or 
on  a  class. 

Elimination  of  Speculative  Elements  in  Bidding.    As  a 

matter  of  policy  the  purchaser  may  choose  to  leave  many 
indefinite  points  in  an  invitation  for  bids.  Such  indefi- 
niteness  may  or  may  not  cause  dealers  to  run  any  risk 
in  bidding.  This  the  purchasing  agent  is  in  a  position 
to  know,  being  informed  from  his  knowledge  of  market 

115 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

conditions  whether  or  not  any  provisions  in  his  invita- 
tions for  bids  require  speculation  on  the  part  of  dealers. 
He  also  knows  whether  such  speculation  is  likely  to 
prove  adverse  or  beneficial  to  himself  as  purchaser.  /  As 
a  general  rule,  modern  purchasing  agents  eliminate  spec- 
ulative elements  from  their  purchase  agreements.  It 
has  been  their  experience  that  the  most  reliable  dealers  in 
all  classes  of  articles  are  not  in  business  as  gamblers, 
and  that  if  they  are  required  to  bid  on  a  gambling  prop- 
osition their  prices  are  placed  sufficiently  high  to  cover 
their  risk,  i  Inexperienced  dealers  may  underbid  them 
either  by  reason  of  their  ignorance  or  of  their  extreme 
desire  to  secure  an  award,  but  deliveries  by  such  dealers 
are  more  than  apt  to  prove  unsatisfactory. 

Elimination  of  the  speculative  element  from  invita- 
tions for  bids  involves,  generally,  definiteness  of  state- 
ment as  to  the  total  quantities  to  be  delivered,  the  quan- 
tity to  be  delivered  at  each  delivery  and  the  time  and 
frequency  of  delivery,  the  place  of  delivery  and  the  de- 
livery conditions  at  each  place,  and,  finally,  the  nature 
of  the  tests  to  be  applied  and  the  causes  for  which  re- 
jection may  be  made.  Indefiniteness  of  total  quantities 
does  not  necessarily,  however,  involve  speculation  in  the 
case  of  articles  readily  procurable  under  normal  market 
conditions.  Indefiniteness  as  to  quantities  and  times  of 
delivery  does  not  in  all  cases  introduce  a  speculative  ele- 
ment so  far  as  market  conditions  are  concerned,  but  it 
does  almost  invariably  introduce  a  degree  of  speculation 
as  to  delivery  expense.  Thus,  if  a  dealer  does  not  know 
at  the  time  he  figures  his  bid  whether  he  is  to  deliver 
weekly  or  monthly,  or  whether  he  will  be  called  upon 
to  deliver  less  than  a  commercial  package  or  a  truck 
load,  he  has  no  basis  for  figuring  his  delivery  charges 
and  must  put  his  prices  high  to  cover  the  risk  that  de- 

ii6 


ELEMENTS  ESSENTIAL  TO  COMPETITION 

liveries  required  of  him  may  be  the  most  inconvenient 
possible.  If  he  has  from  past  experience  or  from  "in- 
side information"  knowledge  of  what  these  delivery  con- 
ditions will  be,  he  may  be  at  an  advantage  in  bidding 
over  his  competitors,  especially  over  new  ones  in  the 
field.  In  the  end,  however,  the  purchaser  cannot  fail  to 
be  the  loser  by  permitting  a  favored  few  to  have  an  ad- 
vantage in  such  information  which  reduces  the  degree 
of  their  speculation,  while  leaving  other  dealers  unin- 
formed. 

It  is  obvious  that  a  dealer  must  put  a  high  price  on 
deliveries  if  he  has  no  definite  information  as  to  whether 
he  will  be  called  upon  to  send  his  truck  within  a  one- 
mile  zone  or  within  a  five-mile  zone.  Similarly,  he  is  at 
a  disadvantage  and  must  raise  his  prices  accordingly  if 
he  has  no  definite  information  as  to  the  precise  condi- 
tions at  each  delivery  point  which  may  facilitate  or  in- 
terfere with  his  deliveries.  For  example,  in  delivering 
forage  the  dealer  must  know  in  order  properly  to  figure 
his  delivery  charges  whether  the  forage  may  be  un- 
loaded at  once  from  the  truck  and  the  truck  thereby 
made  free  for  further  use,  or  whether  it  will  be  neces- 
sary to  keep  the  loaded  truck  for  an  hour  or  more 
awaiting  the  pleasure  of  those  who  are  to  receive  the 
goods.  It  is  also  a  material  point  to  know  whether  any 
service  is  required  on  delivery  in  the  way  of  hoisting 
the  forage  from  a  ground  floor  to  an  upper  floor.  For- 
age dealers  and  coal  dealers  by  experience  in  making 
deliveries  at  certain  points  soon  learn  these  conditions, 
but  it  is  highly  desirable  that  they  be  definitely  stated  in 
the  purchase  agreement  in  order  that  there  may  be  no 
disputes  arising  out  of  changes  therein,  and  also  that 
new  dealers,  as  well  as  experienced  ones,  may  have  the 
advantage  of  such  complete  information. 

117 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

Although  the  nature  of  the  article  required  may  be 
most  definitely  stated,  possibly  in  the  terms  of  a  techni- 
cal specification,  the  dealer  may  find  on  delivery  that  he 
has  been  mistaken  as  to  the  nature  of  tests  to  which  it 
will  be  subjected.  It  is  certain  that  if  this  is  the  case 
his  next  bid  will  be  at  a  price  sufficiently  high  to  cover 
any  risk  involved  on  account  of  this  indefiniteness  of 
test. 

Trading  Reputation  of  the  Purchaser  Among  Vendors. 

Responsible  dealers  do  not  care  to  continue  business  re- 
lations with  a  purchaser  who  has  not  a  high  trading 
reputation,  or  if  they  do  so  they  will  seldom  quote  him 
their  rock-bottom  prices.  This  trading  reputation  con- 
sists of — 

Knowledge  among  dealers  that  the  purchaser  knows 
precisely  what  he  wants  and  the  qualities  of  all  articles 
in  the  market  adequate  to  meet  his  needs.  This  knowl- 
edge among  dealers  stimulates  their  desire  to  do  busi- 
ness with  such  a  purchaser  for  they  know  they  are  not 
likely  to  be  met  with  vacillation,  or  with  unjustified 
complaints,  or  with  requests  necessitated  by  the  pur- 
chasing agent's  mistakes  for  the  favor  of  returning 
goods,  or  of  cancelling  agreements. 

Knowledge  among  dealers  that  the  purchasing  agent 
has  at  his  command  the  most  complete  and  the  latest 
information  as  to  market  conditions  in  each  field  of 
purchase.  Such  a  reputation  borne  by  the  purchaser 
convinces  dealers  that  the  purchasing  agent  in  calling 
for  bids  is  not  merely  fishing  for  information  to  be  de- 
rived therefrom.  They  feel  fairly  confident  that  the 
purchasing  agent  will  know  a  fair  price  when  he  sees 
it  and  this  naturally  induces  them  to  submit  their  best 
prices. 

ii8 


ELEMENTS  ESSENTIAL  TO  COMPETITION 

Knowledge  among  dealers  that  the  purchasing  agent 
is  fair  and  impartial  and  that  the  award  will  be  made 
upon  the  merits  of  the  prices  and  terms  submitted.  The 
purchasing  agent's  reputation  for  fairness  includes  of 
course  the  whole  range  of  his  business  relations  with 
vendors.  A  reputation  for  pettiness,  for  misusing  quo- 
tations by  exposing  them  to  beat  down  a  competitor, 
or  for  gross  impartiality  is  certain  to  soon  result  in  the 
thinnest  sort  of  competition. 

Knowledge  among  vendors  that  they  will  secure 
prompt  payment.  Promptness  of  payment  of  course  in- 
cludes not  only  the  purchasing  agent's  reputation  for  his 
part  in  the  transaction,  but  also  that  of  the  corporation 
as  a  whole.  Dealers  are  not  apt  to  give  much  weight 
to  excuses  for  delay  in  payment.  It  matters  not  to  them 
that  such  delay  was  caused  by  a  technicality  in  auditing 
or  in  accounting.  Such  delay  invariably  affects  the  trad- 
ing reputation  of  the  purchaser  and  stifles  competition. 

Elimination  of  Red  Tape.  The  average  large  dealer  does 
not  care  to  bother  with  business  which  requires  from 
him  a  great  amount  of  special,  clerical  or  possibly 
even  legal  work.  Pride  of  ownership  in  many  cases 
causes  dealers  to  refuse  to  submit  to  special  technicali- 
ties in  order  to  get  business.  This  is  particularly  true 
of  manufacturers.  It  is  also  true  of  wholesalers,  though 
perhaps  to  a  lesser  extent  than  among  manufacturers, 
and  many  retailers  also  refuse  to  do  business  except  at 
a  high  price  with  purchasers  who  make  such  special  re- 
quirements of  them.  The  purchasing  agent  of  a  large 
modern  industrial  company  or  of  a  railroad  finds  it 
greatly  to  his  advantage  to  make  all  of  his  purchase 
transactions  as  simple  as  possible  and  to  require  vendors 
to  depart  to  the  least  possible  extent  from  their  usual 

119 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

business  practice.  In  bidding,  for  example,  formalities 
are  dispensed  with  and  awards  are  made  upon  the  merit 
of  bids  regardless  of  technical  departures  from  the  in- 
vitation for  bids.  In  executing  purchase  agreements 
formalities  are  reduced  to  the  minimum.  For  example, 
in  one  of  our  largest  railroads  a  formal  contract  is  most 
unusual,  purchase  contracts  usually  consisting  merely 
of  a  letter  accepting  a  bidder's  offer.  In  receiving  and 
inspecting  goods  the  most  direct  process  is  adopted  by 
the  modern  efficient  corporation,  and  the  dealer  is  not 
left  long  in  ignorance,  by  reason. of  the  necessity  of 
formal  procedure,  whether  or  not  his  deliveries  are  sat- 
isfactory. In  inspection  and  test  the  rejection  of  ar- 
ticles for  trifling  departures  from  the  precise  terms  of 
the  specification,  or  a  trifling  variation  from  a  sample 
which  in  no  respect  affects  the  merits  of  the  goods  for 
the  purpose  for  which  they  are  intended,  cannot  fail 
to  discourage  future  competition.  The  requirement  of 
formal  procedure  by  dealers  after  they  have  made  de- 
liveries, before  they  can  secure  payment  therefor,  also 
has  a  most  deterrent  effect  upon  all  but  certain  classes 
of  dealers.  For  example,  the  requirement  of  the  second- 
class  cities  of  New  York  State  that  dealers  submit  with 
their  invoices  an  affidavit  that  they  are  the  sole  parties 
in  interest  and  that  no  city  official  is  interested  in  the 
transaction,  directly  or  indirectly,  is  a  petty  technicality 
which  accomplishes  no  beneficial  results,  but  which,  on 
the  other  hand,  puts  many  dealers  to  trouble  and  ex- 
pense even  for  very  small  purchases. 

The  requirement  of  many  purchasers,  particularly 
among  governments,  that  invoices  be  submitted  with  the 
goods  is  apt  to  throw  out  of  gear  the  whole  business  pro- 
cedure of  vendors,  in  that  many  firms  find  it  necessary 
to  prepare  invoices  from  memoranda  received  from  the 

120 


ELEMENTS  ESSENTIAL  TO  COMPETITION 

shipping  room,  very  often  the  following  day  after  the 
goods  have  been  sent  on  their  way. 

Attractive  Quantities.  It  goes  without  saying  that 
quantities  on  invitations  for  bids  in  order  to  stimulate 
competition  must  be  neither  too  large  nor  too  small  to 
attract  the  favorable  attention  of  all  dealers  whose  com- 
petition is  desirable.  Thus,  on  an  invitation  for  bids  on 
meat  it  is  highly  desirable  that  small  local  packers  or 
dealers  be  permitted  to  bid  against  the  large.  There- 
fore, quantities  must  be  sufficiently  small  to  avoid  risk 
to  the  small  packers  or  dealers  and  yet  sufficiently  large 
to  be  attractive  to  the  large  ones.  Such  adjustments  in 
order  to  secure  the  best  results  in  prices  and  in  class  of 
competition  are  often  very  difficult  for  the  purchasing 
agent  to  make. 

Attractive  Delivery  Conditions.  Among  attractive  de- 
livery conditions  may  be  mentioned  these:  (i)  Deliv- 
eries which  permit  a  dealer  to  finish  the  transaction  at 
the  earliest  possible  date  and  secure  his  money  for  in- 
vestment in  another  transaction;  in  short,  which  per- 
mit the  dealer  to  make  rapid  turnovers.  It  is  axiomatic 
that  such  turnovers  permit  a  dealer  to  sell  at  small 
profit.  (2)  Deliveries  in  bulk.  Whether  the  transac- 
tion be  immediately  closed  or  whether  periodical  bulk 
deliveries  be  called  for,  it  is  confessedly  desirable  from 
the  dealer's  point  of  view  in  figuring  delivery  cost  that 
deliveries  at  each  time  should  be  as  large  as  possilple,  at 
least  sufficiently  large  to  constitute  a  load.  (3)  Facili- 
ties for  rapid  unloading  at  points  of  delivery.  (4)  De- 
liveries at  the  dealers'  off  seasons  or  at  their  conve- 
nience. 

A  standard  example  of  the  advantage  of  such  de- 

121 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

liveries  is  in  the  case  of  coal.  A  contract  for  coal  to 
be  delivered  throughout  a  year  may  secure  but  small 
advantage  in  price  even  though  it  be  made  after  the 
April  price  reduction,  but  if  the  contract  be  for  delivery 
during  the  summer  months  when  dealers  are  least  busy 
and  deliveries  are  easiest,  a  material  advantage  in  price 
is  practically  certain  to  result. 

The  elements  above  suggested  and  many  others  which 
will  come  within  his  knowledge  the  purchasing  agent  is 
in  a  position  to  determine  from  his  knowledge  of  mar- 
kets and  from  investigation  of  the  methods  and  pro- 
cedure of  other  purchasers  of  similar  classes  of  items. 
In  investigating  market  conditions  he  must  be  willing 
to  weigh  carefully  the  merits  of  statements  made  by 
dealers  and  their  salesmen.  The  purchasing  agent  can- 
not afford  to  cease  his  investigations  with  any  one  class 
of  dealers.  They  must  carry  him  in  the  case  of  all  im- 
portant purchases  to  every  class  of  dealers — to  manu- 
facturers, wholesalers,  jobbers,  commission  men,  and 
retailers — that  he  may  determine  for  each  class  what 
elements  will  excite  their  desire  to  secure  his  business. 


CHAPTER  VIII 
THE  DEVELOPMENT  OF  SPECIFICATIONS 

The  development  of  specifications — especially  of 
specifications  which  are  to  be  used  as  a  basis  for  com- 
petitive bidding — is  a  problem  of  no  small  difficulty. 
The  difficulty  is  to  frame  specifications  which  shall  be 
sufficiently  precise  and  detailed  to  secure  all  the  advan- 
tages that  flow  from  precision  and  definiteness  without 
at  the  same  time  making  them  so  voluminous  and  intri- 
cate as  to  discourage  and  hinder  competition. 

The  advantages  which  flow  from  precision  and  defi- 
niteness in  the  specifications  contained  in  the  invita- 
tions to  bidders  are  manifold.  A  full  and  precise  speci- 
fication greatly  enhances  the  trading  reputation  of  the 
purchaser  for  exact  knowledge  of  his  needs.  It  informs 
the  dealer  that  shiftiness  during  the  course  of  a  pur- 
chase agreement  is  not  a  part  of  the  purchaser's  policy 
— a  certainty  which  obviously  encourages  competition 
among  the  most  desirable  vendors  and  secures  the  low- 
est prices.  It  saves  the  time  of  dealers,  often  a  very 
important  consideration,  while  incomplete  descriptions, 
on  the  other  hand,  often  require  that  a  dealer  spend  a 
great  amount  of  time  or  rely  upon  personal  knowledge 
of  requirements  or  bid  without  sufficient  knowledge.  It 
saves  the  time  of  the  purchasing  office  in  answering 
questions  of  possible  bidders,  and  it  often  saves  the  time 
of  those  who  are  to  receive  or  use  the  goods  purchased, 
since  otherwise  dealers  often  turn  to  them  for  informa- 
tion. 

123 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

Again,  a  precise  specification  avoids  the  danger  of 
collusion  between  dealers  and  those  who  are  to  receive 
and  use  the  articles  purchased.  To  avoid  this  possi- 
bility, it  is  considered  essential  by  most  large  purchasers 
that  all  information  given  to  the  trade  in  regard  to  pur- 
chase agreements  should  come  from  the  purchasing  de- 
partment rather  than  from  those  who  are  to  receive  or 
use  the  goods.  Absence  of  a  precise  specification  in- 
volves moreover  the  danger  that  information  given 
verbally  will  be  stated  in  different  form  to  several  deal- 
ers. Such  discrepancies  in  information  are  practically 
certain  to  arise  if  dealers  are  left  to  rely  upon  such  in- 
formation as  they  can  pick  up  in  the  course  of  conver- 
sations in  order  to  supplement  incomplete  descriptions 
in  invitations  for  bids.  Even  if  no  unconscious  favor- 
itism is  shown  by  those  giving  verbal  information,  mis- 
understandings are  sure  to  follow,  resulting  in  delays 
due  to  the  necessity  of  replacing  articles  incorrectly  de- 
livered, and  in  extreme  cases  in  litigation. 

The  difficulty  involved  in  making  the  specification 
precise  without  at  the  same  time  making  it  so  narrow  as 
to  unduly  limit  competition  is,  however,  apparent.  It 
is  axiomatic  that  (except  in  the  case  of  patented  articles, 
machine  parts  and  the  like,  where  only  a  specific  article 
will  meet  the  requirement)  a  specification  should  be 
broad  enough  to  invite  the  competition  of  all  articles 
which  will  meet  the  particular  need,  but  it  is  difficult  if 
not  impossible  to  frame  a  specification  so  broadly  with- 
out vesting  in  the  purchasing  agent  a  freedom  of  choice 
among  bidders,  which  is  inconsistent  with  the  legal  pro- 
visions so  generally  found  in  connection  with  govern- 
ment purchasing,  requiring  award  to  the  lowest  bidder. 
The  result  is  that  in  many  governments  specifications 
tend  to  such  a  degree  of  narrowness  as  to  result  in 

124 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

effect  in  the  designation  of  the  exact  article  wanted, 
confining  dealers  in  their  bids  to  that  article,  so  that 
competition  is  possible  only  as  to  price,  terms,  etc.  It 
is  obvious  that  it  is  not  always  possible  to  purchase  to 
advantage  under  such  a  method.  Determination  can- 
not always  be  made  in  advance  of  invitations  for  bids 
as  to  precisely  what  article  will  meet  the  requirements. 
The  tendency  among  many  private  purchasers  and  also 
among  an  increasing  number  of  our  governmental  or- 
ganizations is  toward  breadth  of  specification  in  the 
case  of  all  items  on  which  a  range  of  choice  is  possible. 
An  example  is  the  purchase  of  air-brake  hose  for  a 
railroad.  A  few  years  ago  one  of  our  greatest  rail- 
road systems  purchased  this  hose  under  an  exact  speci- 
fication complete  in  itself.  It  now  purchases  this  item 
under  a  broad  specification  which  merely  informs  the 
manufacturers  the  purposes  to  be  served  and  the  quali- 
ties which  are  indispensable  and  leaves  it  to  the  manu- 
facturers to  submit  with  their  prices  samples  of  what 
they  consider  will  meet  the  requirements,  award  then 
being  made  by  the  railroad  after  careful  test  of  these 
samples.  It  is  stated  by  the  general  storekeeper  of  this 
railroad  that  this  method  of  purchase  has  worked  with 
remarkable  success  both  as  respects  the  quality  of  the 
hose  and  as  respects  price.  It  is  believed  that  an  in- 
creasing number  of  cities  are  purchasing  fire  hose  un- 
der a  broad  specification  requiring  a  choice  before 
award  among  samples  submitted  with  bids  rather  than 
under  a  precise  description  as  formerly.  It  is  recog- 
nized that  in  the  case  of  many  items  advantageous  prices 
cannot,  as  a  rule,  be  secured  unless  competition  as  to 
the  article  be  left  open  until  the  last  moment;  all  pos- 
sible competitors  thereby  knowing  that  they  must  com- 
pete both  as  to  article  and  price  against  every  article 

125 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

which  will  adequately  serve  the  purpose  rather  than 
merely  against  articles  of  the  same  type  as  their  own 
products. 

Verbal  Specifications  versus  Speciiicatians  by  Sample. 

The  degree  to  which  it  is  practicable  or  desirable  to 
make  a  merely  verbal  specification  self-sufficient,  that  is, 
to  make  it  independent  of  any  comparison  with  an  exist- 
ing article,  is  one  of  the  moot  questions  of  modern  pur- 
chasing, particularly  in  governments.  There  is  involved 
here  not  merely  the  question  of  the  actual  practicability 
of  accurately  describing  in  words  the  desired  qualities 
of  the  article,  including  such  qualities  as  taste,  flavor, 
color  and  odor;  even  if  the  feasibility  of  this  be  ad- 
mitted in  the  particular  case,  it  remains  to  be  considered 
whether  it  is  practicable,  without  excessive  cost,  for 
either  the  vendor  or  the  purchaser  to  conduct  the  physi- 
cal and  mechanical  tests  and  examinations  which  are 
necessary  to  determine  the  correspondence  of  an  article, 
when  delivered,  with  a  purely  verbal  specification. 

The  tendency  of  modern  purchasing  is  undoubtedly 
toward  descriptions  complete  in  themselves,  which  are 
often  somewhat  technical  in  character,  going  deeply  into 
the  required  properties.  Dr.  Stratton,  Director  of  the 
National  Bureau  of  Standards,  says :  ''The  time  is  not 
far  distant  when  it  will  be  recognized  that  all  mate- 
rials bought  or  sold  shall  be  as  represented,  but  it  should 
be  kept  in  mind  that  this  is  impossible  except  in  the  case 
of  those  materials  where  proper  standards  of  quality 
and  measurements  shall  be  adopted."  This  tendency 
toward  complete  verbal  description  and  away  from  the 
use  of  the  terms  "equal  to  sample"  or  "equal  to  trade 
name,  catalogue  reference,  etc.,"  is  undoubtedly  devel- 
oping with  the  growth  of  testing  laboratories — private, 

126 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

governmental  and  commercial.  Dr.  Stratton  speaks  as 
the  head  of  what  is  perhaps  our  foremost  testing  labora- 
tory. It  is  natural,  therefore,  that  he  should  consider 
purchasing  by  sample  "a  makeshift  of  the  poorest  sort 
to  be  resorted  to  only  in  the  absence  of  definite  and  re- 
liable specifications  in  terms  of  measurable  qualities." 
Such  progress  has  been  made  in  the  determination  of 
these  qualities  and  in  the  development  of  facilities  for 
testing  materials  available  to  purchasers  and  also  to 
dealers,  that  it  is  no  longer  necessary  to  purchase  many 
articles  by  sample,  which  a  few  years  ago  would  neces- 
sarily have  been  thus  purchased.  Many  food  supplies, 
for  example,  may  be  described  in  terms  of  precise  quali- 
ties, ascertainable  by  a  chemical  or  physical  test.  The 
merits  of  cloth  may  be  determined  by  the  number  of 
threads  to  their  warp  and  woof,  their  finish  and  their 
tensile  strength.  There  is  no  doubt  that  the  merits  of 
some  lubricants  may  be  determined  by  precise  analysis. 
But  it  is  obvious  and  needs  small  argument  to  prove, 
at  least  to  any  purchasing  agent  or  to  any  one  who  has 
had  experience  in  purchasing,  that  the  desirable  quali- 
ties of  many  articles  are  most  difficult  to  express  in 
verbal  description.  This  may  be  because  scientific  analy- 
sis of  properties  has  not  sufficiently  developed,  but 
whether  or  not  this  is  the  case,  purchasing  agents  and 
others  concerned  in  the  development  of  specifications 
find  it  necessary  at  the  present  time  to  supplement  verbal 
description  by  references  to  samples,  to  catalogues,  etc. 
It  would  appear  difficult  to  express  in  scientific  terms 
the  flavor,  for  example,  of  a  cigar.  The  degree  of  sweet- 
ness of  syrup  is  susceptible  of  precise  scientific  test,  but 
the  flavor  of  the  syrup  is  a  matter  which  must  be  left  to 
the  taste.  The  determination  of  color  is  also,  as  a  rule, 
left  to  the  senses,  although  instruments  are  in  success- 

127 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ful  use  for  the  purpose.  The  clearness  of  glass  is  an- 
other instance  of  a  quality  which  is  normally  at  present 
left  to  sight.  Many  items  defy  chemical  or  physical 
analysis;  for  example,  many  varnishes  cannot  be  ana- 
lyzed in  such  a  way  as  to  make  it  possible  for  them  to 
be  duplicated  by  other  than  the  manufacturer.  Red 
lead  in  oil  is  a  further  example  of  the  impossibility  of 
analyzing  properties  in  such  a  way  as  to  make  duplica- 
tion possible.  Such  products  are  manufactured  under 
secret  formulas,  and  the  best  that  the  purchasing  agent 
can  do  in  such  case  is  to  call  for  a  specific  article,  or 
equal  thereto,  stating  the  use  to  which  the  article  is  to 
be  put  and  the  qualities,  so  far  as  he  is  able,  as  to  which 
there  must  be  equality. 

On  many  items  it  has  not  yet  been  definitely  settled 
whether  their  essential  properties  can  or  cannot  be  ade- 
quately described  in  a  technical  specification.  The  ma- 
jority of  lubricating  oils  are  of  such  a  nature,  many 
testing  laboratories  claiming  that  the  essential  proper- 
ties may  be  reduced  to  technical  terms,  and  others  deny- 
ing that  satisfactory  results  in  purchase  will  be  secured 
thereby.  No  further  elaboration  of  the  subject  is  needed 
to  show  the  utter  impossibility  at  present  of  reducing 
every  purchase  need  to  a  detailed  verbal  specification 
complete  in  itself. 

Even  in  the  case  of  articles  on  which  it  is  possible  to 
devise  specifications  complete  in  themeslves,  purchasing 
agents  recognize  that  this  is  often  not  the  wisest  course. 
They  know  that  desirable  competition  may  be  lost  there- 
by among  dealers  who,  if  permitted  to  bid  on  a  non-tech- 
nical specification,  would  give  most  satisfactory  delivery 
service  of  exactly  the  articles  needed.  This  attitude  of 
many  dealers,  purchasing  agents  know%  is  brought  about 
by  several  reasons  among  which  are,  first,  the  fact  that 

128 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

technical  specifications  are  often  looked  upon  with  alarm 
on  account  of  their  apparent  rigidity;  secondly,  that 
many  persons  secure  a  far  better  understanding  of  pre- 
cise needs  through  their  senses  than  they  do  by  reading 
a  lengthy  and  possibly  technical  description  thereof,  and, 
thirdly,  in  many  cases  dealers  have  not  facilities  of  their 
own  for  making  technical  tests  to  insure  that  their  ar- 
ticles comply  with  the  technical  specifications  and  find 
it  too  expensive  to  hire  the  services  of  a  commercial 
laboratory.  In  view  of  this  knowledge,  the  purchasing 
agent  often  sees  the  necessity  of  making  his  specifica- 
tion as  non-technical  as  possible. 

Even  though  all  the  properties  of  an  article  are  sus- 
ceptible of  verbal  description  in  a  specification  complete 
in  itself,  it  is  futile  for  a  purchaser  to  employ  a  highly 
technical  specification  unless  he  has  at  his  command  the 
facilities  for  readily  determining  whether  or  not  de- 
liveries meet  the  specification  terms.  It  is  worse  than 
useless,  in  that  it  brings  the  purchaser  into  contempt 
among  vendors  when  they  find  that  the  specification  is 
largely  a  bluff  and  when  they  find,  furthermore,  that 
they  have  perhaps  bid  a  high  price  in  order  to  conform 
to  the  specification  and  lost  the  business  to  a  dealer  who 
very  likely  had  no  idea  of  undertaking  to  comply  there- 
with and  who  succeeds  in  making  inferior  deliveries. 
This  result  not  only  brings  the  purchaser  into  contempt 
for  bluffing,  but  even  raises  suspicion  of  favoritism  or 
graft.  If  inspectors  are  not  adequate  in  number  or  in 
training  or  in  honesty,  if  several  inspectors  at  different 
points  or  the  same  inspector  at  different  times  adopt 
varying  interpretations  of  the  provisions  of  a  specifi- 
cation, if  laboratory  facilities  are  lacking  to  make  the 
necessary  technical  tests,  it  is  far  better  to  avoid  the 
use  of  a  technical  specification. 

129 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

If  a  technical  specification  is  discarded  as  imprac- 
ticable, the  purchaser  in  many  cases  has  an  alternative 
of  a  non-technical  specification  which  may  serve  the 
purpose,  though  possibly  not  as  fully  as  would  a  tech- 
nical one.  It  is  for  the  purchasing  agent  or  other  stand- 
ardizing and  specifying  agency  to  determine  how  tech- 
nical it  is  wise  for  him  to  make  his  specifications.  In 
case  inspecting  and  testing  agencies  are  entirely  inade- 
quate even  for  a  non-technical  specification,  but  one 
course  is  open  to  the  purchasing  agent  of  a  private  or- 
ganization, namely,  to  carefully  limit  his  sources  of  sup- 
ply to  dealers  whom  he  knows  he  can  trust.  This  is 
likewise  plainly  the  only  alternative  left  to  a  govern- 
mental purchasing  agent,  in  the  absence  of  adequate  in- 
specting and  testing  staffs,  in  spite  of  any  legal  or  ad- 
ministrative regulations  which  require  broad  competi- 
tion on  all  purchases  or  which  require  the  award  to  be 
given  to  the  lowest  bidder. 

The  choice  by  the  users  of  articles  among  samples, 
catalogue  references,  trade  names,  etc.,  submitted  with 
prices  takes  considerable  time  and  in  many  cases  delays 
award.  This  fact  confines  the  use  of  this  method  to 
those  articles  only  to  which  it  is  especially  appropriate. 
In  the  purchase  of  many  items  there  would  be  no  ad- 
vantage in  a  broad  specification,  leaving  to  the  pur- 
chasing department  or  the  users  of  the  articles  choice 
among  samples,  catalogue  references,  etc.,  submitted 
with  bids.  This  is  probably  true  as  to  the  general  run 
of  articles.  A  great  majority  can  probably  be  described 
in  such  terms  as  to  secure  adequate  quaHty  and  still 
leave  plenty  of  room  for  competition. 

It  is  difficult  to  frame  a  general  rule  and  it  has  been 
found  that  purchasing  agents  are  loath  to  undertake  to 
do  so,  but  it  may  perhaps  be  stated  as  a  broad  princi- 

130 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

pie,  that  specifications  complete  in  themselves  and  going 
down  to  the  last  detail  of  analysis  of  items  to  be  de- 
livered should  be  used  only  in  case  the  purchaser  is  un- 
doubtedly in  a  better  position  to  define  the  exact  item 
which  he  needs  than  is  the  trade.  It  appears  to  be  gen- 
erally true  that  purchasers  who  use  specifications  com- 
plete in  themselves  in  inviting  bids  for  the  purchase  of 
all  items  are  apt  not  to  recognize  even  in  case  of  emer- 
gency that  there  is  such  a  thing  as  a  substitute.  This 
is  plainly  an  attitude  which  the  modern  purchasing 
agent  has  no  license  to  take.  In  short,  the  development 
of  adequate  descriptions  of  items  in  specifications  is  not 
a  means  of  reducing  purchasing  to  rule  of  thumb  pro- 
cedure. It  requires  a  most  constant  and  minute  study 
on  the  part  of  the  purchasing  agent  and  his  assistants 
of  all  articles  in  the  market  to  meet  each  need  and  of 
current  market  conditions. 

Examination  of  the  best  modern  practice  in  purchas- 
ing leads  to  the  conclusion  that  specifications  should  be 
written  in  detailed  and  complete  terms  with  reference 
to  every  possible  controversial  point ;  in  short,  individual 
preferences  or  partiality  of  users  of  goods  and  of  in- 
spectors should  be  reduced  to  a  minimum.  The  term 
"equal  to  sample"  may  have  too  wide  a  range  of  mean- 
ing if  unsupported  by  written  detailed  descriptions  of 
the  precise  points  in  which  there  must  be  equality.  This 
is  a  source  of  trouble  on  deliveries  which  necessarily 
injures  future  competition  and  the  purchaser's  reputa- 
tion for  fairness  and  it  also  leaves  a  large  opportunity 
for  graft  and  favoritism.  The  best  invitations  for  bids, 
whether  of  private  companies  or  of  governments,  in 
using  the  expression  "equal  to  sample,"  state  precisely 
where  that  sample  may  be  seen  and  state  also  the  re- 
spects in  which  there  must  be  equality.    Thus,  in  speci- 

131 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

fying  for  cloth,  the  description  of  a  particular  item  may 
give  width  of  the  bolt  and  may  require  that  the  cloth 
be  equal  to  sample  in  threads  to  warp  and  woof,  in  fin- 
ish, in  weight,  color  and  tensile  strength. 

Where  technical  specifications  are  employed  it  is  es- 
sential that  a  reasonably  liberal  attitude  be  taken  by  the 
purchaser  with  respect  to  the  interpretation  of  specifi- 
cations. Private  corporations  have  little  difficulty  in 
this  respect.  If  at  any  time  during  the  course  of  de- 
liveries under  a  specification  the  purchaser  decides  that 
he  will  admit  articles  which  do  not  comply  in  every  re- 
spect with  the  specification,  it  is  his  privilege  to  do  so. 
Among  governments,  however,  there  is  a  tendency  to 
hold  the  dealer  to  the  strictest  interpretation  of  every 
provision  of  a  specification  even  when  a  slight  varia- 
tion therefrom  does  not  affect  the  merits  of  the  articles 
delivered.  The  obvious  reason  for  this  tendency  is  dan- 
ger that  if  the  bars  are  let  down  in  the  slightest  respect 
there  may  be  no  limit  to  dealers'  demands  for  depar- 
tures from  a  specification.  It  is  clear,  however,  that 
rigid  interpretation  of  a  specification  in  many  cases  has 
the  most  discouraging  effect  upon  future  competition 
and  necessarily  raises  prices.  It  is  well  known  that  deal- 
ers dislike  to  deal  with  governments  by  reason  of  this 
very  rigidity  in  interpretation  of  specifications,  and  fear 
that  they  may  be  held  under  all  circumstances  of  chang- 
ing market  conditions,  etc.,  to  compliance  with  most 
trivial  provisions,  possibly  at  a  great  loss  to  themselves. 
Many  governmental  organizations  are,  however,  at- 
tempting somewhat  the  same  course  as  is  followed  by 
some  private  corporations,  namely,  submitting  the  ques- 
tion of  any  departure  from  a  specification  on  deliveries 
to  an  executive  board,  such,  for  example,  as  the  stand- 
ardizing agency  or  board  or  committee  with  which  the 

132 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

specification  originated.  Thus,  a  means  is  provided  by 
which  the  government  may  avoid  loss  to  itself,  while 
at  the  same  time  protecting  itself  against  favoritism  or 
graft  on  the  part  of  those  who  are  to  pass  the  goods 
for  payment. 

Contents  of  Specifications.  Specifications  are  normally 
stated,  as  far  as  possible,  in  standard  terms  and  under 
a  uniform  arrangement  of  provisions.  A  logical  ar- 
rangement of  such  provisions  is  that  adopted  by  New 
York  City,  which  is  as  follows : 

1.  Name  of  the  article  adopted  as  standard. 

2.  Qualities  required  in  the  article. 

3.  Qualities  excluded  from  the  article. 

4.  Methods  of  test  if  the  specification  be  technical 
and  requires  tests  on  deliveries. 

5.  Unit  of  price. 

6.  Unit  of  delivery. 

7.  Nature  of  containers,  if  any. 

Standardization  and  the  Development  of  Specifications. 

In  large  organizations  the  tendency  is  increasingly  in 
the  direction  of  setting  up  a  central  authority  for  the 
development  of  specifications.  Where  this  is  done 
there  almost  invariably  results  a  marked  standardiza- 
tion in  the  articles  used  in  the  several  branches  of  the 
organization — the  determination  of  the  exact  type  or 
grade  of  article  best  adapted  to  meet  each  purchase  need 
and  the  elimination  of  other  grades  and  varieties  of  ar- 
ticles. 

I  Standardization  is  now  recognized  by  purchasing 
agents  as  the  basis  for  efficiency  in  purchasing,  for  it 
tends  to  secure  for  all  similar  needs  the  article  which 

133 


PRINCIPLES  OF  GOVERNMENT  PURCHASING- 

experience  has  shown  to  be  the  best  for  the  purpose. 
Again,  it  enables  the  purchasing  agent  to  buy  in  large 
quantities  by  consolidating  purchase  needs  to  the  high- 
est degree,  which  is  possible  only  when  identically  the 
same  item  is  to  be  bought  for  each  unit  of  service.  It 
facilitates  interchangeability  of  articles  as  between 
units  of  service;  it  facilitates  the  maintenance  of  stock 
by  eliminating  needless  variety  and  concentrating  at- 
tention on  essentials,  and  thereby  makes  stock  items 
readily  available  for  use  and  obviates  the  necessity  of 
emergency  purchase;  it  eliminates  waste  and  surplus- 
age arising  from  the  fact  that  individual  preferences 
of  certain  individuals  may  be  disapproved  by  their  suc- 
cessors in  office;  and  it  avoids  the  danger  of  favoritism 
or  graft  in  such  individual  tastes  or  preferences.  By 
reducing  the  number  of  items  to  be  purchased,  it  sim- 
plifies the  work  of  the  purchasing  office — a  matter  of 
great  importance  to  an  office  which  has  upwards  of 
100,000  items  to  be  purchased,  as  in  the  case  of  a  rail- 
way purchasing  department;  it  simplifies  the  work  of 
inspection  by  reducing  the  variety  of  items  on  which  in- 
spectors must  exercise  their  judgment,  and  the  work 
of  accounting  and  of  auditing  by  reducing  the  number 
of  items  on  stores,  property,  expense  and  cost  accounts 
and  of  those  entering  into  the  totals  of  the  general  ac- 
counts. Lastly,  it  makes  possible  comparisons  in  price 
on  standard  items  between  two  or  more  delivery  points 
or  between  two  or  more  varied  delivery  conditions  or 
methods  of  purchase,  and  thereby  facilitates  the  deter- 
mination by  the  purchasing  office  of  the  best  method  of 
purchase.  Standardization  is  now  being  carried  on  by 
private  corporations  and  also  by  some  governments  to 
cover  practically  every  item  purchased.  The  depart- 
ments of  the  federal  government  in  Washington,  for 

134 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

example,  have  been  for  the  last  seven  years  standard- 
izing their  purchases  through  the  General  Supply  Com- 
mittee. New  York  City  has  also  for  seven  years  been 
standardizing  through  various  agencies  of  the  board  of 
estimate  and  apportionment.  Special  units  of  organ- 
ization for  the  purpose  have  been  formed  in  many  other 
cities,  as  in  Baltimore  and  St.  Louis,  where  standard- 
ization committees  have  been  established  to  undertake 
to  bring  some  order  and  system  into  rather  chaotic 
purchasing  conditions. 

In  most  private  companies  the  development  of  speci- 
fications and  standardization  is  an  incidental  process 
carried  on  by  the  experts  in  the  purchasing  department 
in  cooperation  with  the  general  storekeeper  and  with 
the  users  of  goods  and  in  accordance  with  suggestions 
coming  from  most  varied  sources.  There  have  devel- 
oped, however,  in  many  private  corporations  standard- 
ization boards  or  committees  before  which  every  item 
suggested  for  purchase  must  come  for  approval. 

In  embarking  upon  a  consistent  standardization  pro- 
gram   the    first    problem    is    of    course    the    selection 
from  among  the  enormous  number  of  items  purchased 
of  those   for  which  standardization  and  specification 
shall  first  be  attempted.     Obviously  the  items  involv- 
ing the  largest  amounts  of  money  are  the  ones  which 
should  first  be  handled.     It  has  been  found  better  to 
make  a  beginning  with  classes  of  items  which  are  obvi- 
ously important  in  this  respect  rather  than  to  undertake 
to  determine  scientifically  and  accurately  whether  some 
other  class  of  items  may  not  be  a  trifle  more  important. 
No  analysis  of  purchase  vouchers  is  necessary.     Any 
purchasing  agent  or  skilled  specialist  in  purchasing  or 
general  storekeeper  can  see  by  a  glance  at  an  invitation 

135 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

for  bids  or  a  stock  book  what  classes  of  items  need 
standardization  and  more  precise  descriptions. 

Having  determined  the  class  of  items  on  which  to 
standardize  and  prepare  standard  specifications,  the 
next  step  consists  in  securing  specifications  for  similar 
items  in  use  by  other  large  purchasers,  such  as  railroads, 
manufacturing  corporations,  governmental  agencies,  or 
those  promulgated  by  such  scientific  societies  as  the 
American  Society  for  Testing  Materials  or  the  Amer- 
ican Society  of  Civil  Engineers,  or  of  such  meritorious 
scientific  agencies  as  the  National  Bureau  of  Stand- 
ards. With  all  specifications  before  it,  it  is  for  the 
standardizing  and  specifying  agency  to  determine  the 
importance  of  each  provision  contained  in  these  exist- 
ing specifications.  In  the  case  of  a  highly  technical 
specification,  the  assistance  of  a  laboratory  is  necessary. 
It  is  the  part  of  the  laboratory  to  collect  samples  of  each 
item  in  question  and  to  subject  the  samples  to  the  vari- 
ous tests  stated  in  the  existing  specifications. 

The  next  step  of  the  standardizing  and  specifying 
agency  is  to  consult  all  users  of  the  class  of  items  under 
consideration  to  determine  exactly  how  many  grades 
and  varieties  of  each  item  are  necessary  in  order  to 
meet  each  precise  need.  This  consultation  conducted 
of  course  in  a  spirit  of  cooperation  must  undertake  to 
subordinate  individual  preference  to  the  common  good, 
and  as  a  rule  little  difficulty  is  found  in  so  doing. 

Having  determined  the  importance  of  each  provision 
in  existing  specifications  and  having  determined  the 
precise  needs  of  each  unit  of  service  with  reference  to 
each  item,  it  is  the  work  of  the  standardizing  and  speci- 
fying agency  to  investigate  the  particular  conditions  in 
the  markets  upon  which  it  must  rely  for  a  supply.  This 
is  obviously  an  essential  step.     It  would  be  most  futile 

136 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

to  undertake  to  use  without  such  investigation  a  speci- 
fication developed  for  use  under  possibly  quite  differ- 
ent market  conditions.  In  the  course  of  this  investiga- 
tion it  is  for  the  standardizing  and  specifying  agency 
to  develop  its  knowledge  as  to  methods  of  production 
and  to  determine  the  probable  effect  upon  competition 
of  each  provision  in  a  specification. 

The  next  step  consists  in  drafting  a  tentative  speci- 
fication again  in  conference  with  representatives  of 
the  several  units  of  service  for  which  the  articles  in 
question  are  to  be  supplied.  It  has  been  found  service- 
able in  New  York  City  and  in  other  governments  to  in- 
vite to  such  conferences  representatives  of  manufac- 
turers and  of  large  dealers  in  order  that  these  repre- 
sentatives may  give  their  opinions  as  to  what  articles 
will  meet  each  need  and  that  they  may  also  state  their 
points  of  view  as  to  all  suggested  provisions  of  the 
tentative  specification.  The  friendly  clash  of  opinions 
between  manufacturers  and  users  of  goods  is  very  often 
most  enlightening  to  a  purchasing  agent  or  to  anyone 
else  concerned  in  the  development  of  standard  specifi- 
cations. Of  course  representatives  of  manufacturers 
and  dealers  have  no  voice  in  the  preparation  of  the  final 
draft  of  the  tentative  specification.  Whether  such  rep- 
resentatives be  present  at  conferences  for  the  purpose 
or  not,  it  has  been  found  by  New  York  City  and  by  the 
General  Supply  Committee  of  the  federal  government 
that  manufacturers  and  large  dealers  are,  as  a  rule, 
very  glad  to  give  their  suggestions  in  so  far  as  it  is  not 
necessary  to  expose  trade  secrets.  Thus,  in  New  York 
City  in  a  recent  standardization  of  soaps,  suggestions 
were  received  from  about  fifteen  manufacturers  and 
many  of  these  suggestions  were  embodied  in  the  tenta- 
tive specifications.     In  the  standardization  of  meats, 

137 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

advice  was  sought  from  representatives  of  all  the  large 
packers  in  the  city,  from  the  small  packers  and  dealers, 
from  the  quartermaster's  department  of  the  United 
States  Army,  from  the  paymaster's  department  of  the 
United  States  Navy,  from  the  large  hotels  of  the  city, 
and  from  the  New  York  representatives  of  the  United 
States  Bureau  of  Animal  Industry, 

The  last  step  is  the  test  of  the  tentative  specification 
in  actual  competition,  comparing  prices  received  there- 
under with  prices  previously  received  and  with  current 
market  prices.  In  many  cases  it  has  been  found  pos- 
sible and  advisable  in  New  York  City  and  elsewhere  to 
make  this  test  by  calling,  on  a  single  invitation,  for  bids 
in  the  alternate  under  two  or  more  tentative  specifica- 
tions, or  under  a  tentative  standard  specification  in  com- 
parison with  a  previous  specification. 

In  view  of  the  results  received  in  actual  competition, 
it  is  for  the  standardizing  and  specifying  agency  to  re- 
vise and  perfect  the  tentative  specification.  Means  for 
the  ready  revision  of  specifications  to  meet  changing 
conditions  either  within  the  purchaser's  organization  or. 
in  the  markets  are  so  obviously  necessary  to  skilled  pur- 
chasing and  to  the  economic  welfare  of  the  purchaser 
as  to  scarcely  need  comment.  No  private  corporation 
could  afford  to  tie  itself  definitely  to  a  specification  or 
to  put  any  obstacles  in  the  way  of  its  revision  in  case 
market  conditions  or  conditions  within  the  organization 
required. 

The  Purchasing  Agent  and  Standardization  of  Specifica- 
tions. In  private  corporations  standardization  and  the 
development  of  specifications  as  respects  the  most  im- 
portant materials  and  equipment  are  not  the  work  of  the 
purchasing  department.     In  a  manufacturing  corpora- 

138 


THE  DEVELOPMENT  OF  SPECIFICATIONS 

tion,  for  example,  standardization  and  the  development 
of  specifications  for  production  materials  is  the  work 
of  the  engineering  department  or  planning  department. 
Similarly  on  a  railroad  the  development  of  specifica- 
tions for  materials  and  parts  is,  as  a  rule,  the  work  of 
the  mechanical,  operating  or  maintenance  of  way  de- 
partments. However,  the  head  of  a  central  purchasing 
department  is  in  the  best  possible  position  to  see  the 
obvious  necessity  of  standardization  and  of  exact  de- 
scription of  purchase  needs.  It,  therefore,  becomes  his 
duty,  not  only  in  so  far  as  concerns  the  general  welfare 
of  the  organization  for  which  he  purchases,  but  also  in 
order  that  he  may  facilitate  his  own  work  and  may 
have  an  opportunity  to  exercise  real  skill  in  purchas- 
ing, to  take  the  initiative  in  all  cases  where  specifica- 
tions have  not  been  sufficiently  developed  or  standard- 
ization carried  to  the  farthest  practicable  extent.  This 
is  the  customary  course  of  purchasing  agents  of  private 
corporations  and  of  many  city  governments  where  cen- 
tral purchasing  departments  have  been  established. 
This  initiative  does  not  mean  forcing  the  opinion  of 
the  purchasing  agent  upon  users  of  the  items  in  ques- 
tion, for  this  would  naturally  result  in  diminishing  the 
essential  authority  of  these  users  in  working  to  secure 
the  ends  for  which  they  are  responsible.  The  purchas- 
ing agent's  initiative  in  this  respect  means  ratlier  initia- 
tive toward  cooperative  standardization  and  develop- 
ment of  specifications.  Some  governments,  it  is  true, 
have  granted  authority  to  the  purchasing  agent  to  force 
his  opinion  as  to  standards  upon  the  users,  but  it  is  the 
almost  universal  practice  of  private  corporations  that 
such  interference  with  individual  responsibility  should 
come  from  a  higher  executive  than  the  purchasing 
agent.     The  purchasing  agent's  initiative,  however,  in 

139 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

calling  conferences  for  standardization  and  the  devel- 
opment of  specifications  is,  as  a  rule,  all  that  is  neces- 
sary to  secure  the  desired  ends. 

In  case  specifications  are  developed  by  users,  it  is  the 
part  of  the  purchasing  agent  to  bring  to  their  attention 
any  provisions  which  needlessly  limit  competition  or 
increase  prices,  and  to  secure  the  elimination  of  such 
provisions  to  the  farthest  extent  consistent  with  the 
users'  needs. 


CHAPTER  IX 

INVITING  BIDS:  SPECIAL  PROBLEMS  IN  PRE- 
PARING AN  INVITATION  FOR  BIDS 

Possessed  of  full  data  as  to  his  exact  purchase  re- 
quirements and  of  adequate  information  as  to  market 
conditions  and  tendencies,  and  provided  with  specifica- 
tions adapted  both  to  his  purchase  requirements  and  to 
market  conditions,  the  purchasing  agent  is  in  a  posi- 
tion to  exercise  skill  in  his  choice  of  a  method  of  buy- 
ing. At  this  stage  comes  the  real  test  of  his  efficiency 
— his  ability  to  secure  competition  and  to  negotiate  a 
bargain. 

The  problems  confronting  the  purchasing  agent,  and 
more  particularly  the  government  purchasing  agent,  at 
this  stage,  may  be  said  to  be  of  three  kinds :  those  inci- 
<ient  to  the  framing  of  the  invitation  for  bids;  those  in- 
cident to  the  formulation  of  the  proposed  purchase 
agreement  or  contract,  and  those  involved  in  securing 
favorable  publicity  among  bidders.  In  this  and  the  two 
succeeding  chapters  these  problems  will  be  discussed. 

It  is  not  expected  that  the  discussion  given  will  de- 
velop any  point  which  is  not  familiar  to  all  experienced 
purchasing  agents.  The  points  brought  forward,  how- 
ever, are  often  lost  sight  of  by  other  executives  and  in 
governments  by  administrative  boards  and  legislators 
in  prescribing  rules  and  regulations  governing  pur- 
chases. Under  a  stereotyped  method  of  purchase  re- 
sulting from  fixed  rules  and  regulations,  whether  laid 

141 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

down  by  lawmakers  or  by  administrative  superiors,  no 
consideration  is  paid  to  these  points. 

Class  versus  Item  Bids.  One  of  the  major  questions 
involved  in  the  framing  of  an  invitation  for  bids  cov- 
ering a  variety  of  items  is  that  of  class  as  against  item 
bids;  that  is,  whether  it  is  better  to  permit  bidders  to 
quote  a  price  separately  on  each  item  or  to  require  prices 
upon  an  entire  class,  award  to  be  made  upon  the  class 
as  a  whole;  and  the  cognate  question,  whether  it  is  de- 
sirable to  permit  bidding  separately  with  respect  to  the 
deliveries  of  a  given  item  to  each  point  of  delivery,  or 
to  require  bids  to  cover  deliveries  to  all  points. 

If  wisely  used,  class  bids  may  be  used  to  advantage 
in  a  variety  of  circumstances.    In  a  contract  for  the  de- 
livery,  over   a   period,   of   several   items   of   a  class, 
the   quantity   of   each   item   to   be   delivered   at   each 
delivery  may  be  in  itself  unattractive,  whereas  a  de- 
livery of  all  of  the  items  of  the  class  appeals  to  dealers 
and  brings  forth  favorable  bids.     For  example,  if  deal- 
ers are  asked  to  bid  on  hay,  oats,  straw,  bran,  and  per- 
haps  several   other   items   of    forage   to   be   delivered 
weekly  in  small  quantities  of  each  item,  no  one  of  them 
constituting  a  truck  or  wagon  load,  and  it  be  announced 
that  the  award  is  to  be  on  each  item  separately,  a  dealer 
will  have  to  figure  his  expense  of  delivery  separately 
on  each  item  in  order  to  protect  himself  should  he  se- 
cure the  award.     If,  however,  he  is  asked  to  bid  on  de- 
livering weekly  all  items  in  the  class,  he  has  but  one  de- 
livery charge  to  figure  to  extend  over  his  unit  prices 
and  to  add  to  his  class  total.     Aside  from  delivery  ex- 
penses, dealers  must,  in  making  bids,  figure  a  percent- 
age of  overhead  expenses.     If  they  are  asked  to  bid  on 
each  item  separately  they  must  figure  a  percentage  on 

142 


INVITING  BIDS 

each  item,  whereas  in  many  cases  if  they  are  permitted 
to  bid  on  the  entire  class,  with  the  knowledge  that  they 
will  get  the  award  on  the  entire  class  or  nothing,  they 
are  usually  in  position  to  spread  the  percentage  of  over- 
head over  the  entire  class  instead  of  figuring  it  on 
each  item  separately.  When  bidding  is  close  and  ac- 
curate this  will  inevitably  result  in  better  prices.  For 
example,  if  bidders  are  asked  to  bid  separately  on  the 
delivery  of  meat  to  each  of  several  institutions  in  a  zone 
of  delivery  within  a  city,  award  to  be  made  to  the  low- 
est bidder  for  each  institution,  overhead  must  be  fig- 
ured by  each  dealer  for  each  delivery  point,  whereas  if 
he  is  permitted  to  bid  on  deliveries  to  all  the  institu- 
tions in  the  zone,  he  can  figure  one  overhead  expense 
for  the  contract.  Again,  the  opportunity  to  bid  on 
several  items  in  a  class  may  be  attractive  by  reason  of 
the  total  amount  involved,  whereas  the  amount  of  each 
individual  item  may  be  small. 

It  may  be  desirable  from  the  purchaser's  point  of 
view  also  to  confine  deliveries  of  all  items  in  a  class  to 
one  firm.  There  may  be  several  reasons  for  this, 
among  which  are  ( i )  the  greater  facility  in  inspection, 
particularly  if  inspection  at  the  source  rather  than  on 
delivery  is  desired;  (2)  avoidance  of  the  trouble  and 
inconvenience  of  having  many  dealers  make  deliveries 
instead  of  one;  (3)  the  necessity  of  one  or  more  items 
in  the  class  being  perfectly  adapted  to  other  items,  as, 
for  example,  pipe  fittings  to  pipes;  (4)  the  necessity  of 
simultaneous  deliveries  of  items  in  order  to  avoid  de- 
lay. 

Finally,  class  bidding  has  the  advantage  from  the 
government  purchasing  agent's  point  of  view,  especially 
where  his  freedom  of  choice  among  vendors  is  restricted, 

143 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

that  it  enables  him  to  Hmit  competition  to  firms  which 
are  large  enough  to  handle  all  of  the  purchaser's  busi- 
ness in  the  class. 

Despite  the  advantages  of  class  bidding  just  enumer- 
ated, many  administrative  officers  have  a  deep-seated 
aversion  to  the  method.  The  basis  of  their  objections 
lies  in  their  fear  of  so-called  "unbalanced  bidding"  on 
class  bids,  that  is,  that  bidders  will  state  a  low  price  on 
some  items  and  a  very  high  price  on  others,  their  total 
being  low  enough  to  secure  the  award,  after  having 
come  to  a  secret  understanding  with  the  purchasing  of- 
fice that  they  will  not  be  asked  to  deliver  low-priced 
items.  In  connection  with  construction  contracts  this 
danger  is  indeed  difficult  to  meet. 

In  purchase  contracts,  however,  there  should  not  be 
opportunity  for  secret  understandings  if  all  transac- 
tions and  records  of  the  purchasing  department  are 
made  public,  and  if  the  purchasing  department  confines 
invitations  for  bids  and  purchase  orders  to  estimated 
quantities  received  from  the  departments  or  divisions 
thereof,  or  from  a  general  storekeeper  of  independent 
authority.  Plainly,  if  quantities  are  to  be  determined 
by  one  division  of  service  and  award  be  made  and  pur- 
chase orders  issued  by  another,  a  dealer's  opportunity  for 
collusive  ''unbalanced"  bidding  is  fairly  well  dissipated. 

There  are  in  addition,  however,  difficulties  of  a  more 
technical  character  to  which  fullest  consideration  must 
be  given  in  combining  items  or  delivery  points  in  classes 
for  bidding.  Chief  among  those  is  the  obvious  require- 
ment that  there  must  not  be  too  wide  a  variety  of  arti- 
cles embraced  in  a  single  class. 

Whether  or  not  a  class  bid  for  a  class  on  which  an 
award  is  to  be  made  in  its  entirety  is  sufficiently  homo- 
geneous depends  upon  the  nature  of  the  competition 

144 


INVITING  BIDS 

sought.  If  it  is  expected  or  hoped  that  manufactur- 
ers or  large  specialists  among  wholesalers  will  bid,  the 
class  must,  as  a  rule,  be  absolutely  homogeneous  as  to 
the  nature  of  articles  therein.  Thus,  if  bids  are  desired 
from  manufacturers  of  or  special  dealers  in  varnishes, 
varnishes  must  not  be  included  in  the  same  class  with 
paints.  Manufacturers  and  large  specialists  among 
wholesalers  will,  as  a  rule,  pay  no  attention  to  a  class 
if  it  contains  items  which  they  do  not  handle.  It  may 
be  beneath  their  dignity  or  involve  too  much  trouble  to 
go  outside  their  regular  line  and  purchase  items  in  or- 
der to  secure  an  award  on  items  which  they  regularly 
handle.  This  is  an  exceedingly  important  matter  for 
a  purchasing  department  to  determine.  It  is  more  often 
than  not  the  explanation  of  why  bids  are  not  received 
from  manufacturers  or  large  wholesalers.  If,  on  the 
other  hand,  bids  are  desired  and  expected  only  from 
jobbers  or  large  retail  stores,  almost  any  sort  of  a  com- 
bination may  be  made  in  a  class. 

Whether  or  not  it  is  desirable  to  seek  bids  from  man- 
ufacturers and  large  wholesalers  depends  of  course 
upon  the  quantities  to  be  purchased.  It  has  been  said 
that  the  amount  of  buying  a  man  does  through  a  job- 
ber is  a  sure  index  of  how  lazy  he  is.  This  of  course 
is  not  universally  true,  although  it  would  certainly  be 
true  were  the  quantities  purchased  in  all  cases  large. 
The  jobber,  however,  undoubtedly  serves  a  useful  pur- 
pose in  being  ready  at  all  times  to  supply  articles  in 
small  quantities.  If  the  quantity  of  each  item  in  a 
class  be  in  itself  unattractive  to  manufacturers  and 
wholesalers,  it  is  probably  wise  to  seek  bids  from  job- 
bers or  large  retailers. 

A  cognate  danger  to  be  avoided  in  drawing  up  an  in- 
vitation to  bidders  is  the  combination  of  too  wide  a 

145 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

variety  of  delivery  conditions  in  one  class.  The  com- 
bination of  bad  delivery  conditions  with  attractive  de- 
livery conditions  in  a  class  almost  inevitably  results  in 
the  sacrifice  of  advantages  in  prices  which  should  nat- 
urally accrue  to  the  attractive  deliveries.  Examples 
of  such  dangerous  combinations  of  delivery  points  are 
the  combination  of  deliveries  in  large  quantities  to 
some  points,  and  in  very  small  quantities,  perhaps  broken 
packages,  to  others,  or  calling  for  delivery  to  nearby  de- 
livery points  in  the  same  class  with  deliveries  to  far  dis- 
tant delivery  points. 

While  it  is  beyond  question  that  a  class  of  several 
items  is  more  attractive  to  a  dealer  equipped  to  handle 
the  entire  class  than  is  each  item  therein  separately,  an 
expert  purchaser  takes  care  that  the  total  quantity  in 
the  class  is  not  so  great  as  to  needlessly  restrict  com- 
petition. An  example  of  quantities  so  large  as  to  re- 
strict competition  was  presented  by  the  first  proposal 
for  meats  of  the  central  purchase  committee  of  New 
York  City.  This  proposal  divided  the  city  into  zones 
and  bids  were  sought  separately  for  each  zone  for  the 
delivery  of  the  different  kinds  of  meats  as  a  class  to 
all  delivery  points  within  the  zone.  Thus,  for  the  bor- 
oughs of  Manhattan  and  The  Bronx,  which  constituted 
one  zone,  an  item  in  the  class  called  for  beef  fore  quar- 
ters to  the  amount  of  428,000  pounds  to  be  delivered 
during  the  first  three  months  of  191 5  to  six  delivery 
points  in  the  two  boroughs.  Dealers  complained,  after 
bids  were  opened  on  this  proposal,  that  quantities  were 
so  large  that  competition  was  practically  restricted  to 
a  few  of  the  large  packers.  The  next  proposal  was, 
therefore,  changed  to  make  the  period  shorter,  that  is, 
for  one  month,  and  also  to  divide  the  quantities  of  each 
of  the  largest  items  into  three  or  more  lots.     For  ex- 

146 


INVITING  BIDS 

ample,  a  total  of  165,000  pounds  of  beef  to  be  deliv- 
ered during  the  month  of  April  in  the  zone  consisting  of 
the  boroughs  of  Manhattan  and  The  Bronx  was  di- 
vided into  three  quantities  of  55,000  pounds  each, 
awards  to  be  made  on  each  of  these  three  quantities 
separately.  This  method  resulted  in  better  prices  than 
formerly,  and  the  complaints  of  the  small  dealers  ceased. 
Where  any  doubt  exists  as  to  the  advisability  of  class 
bids,  purchasers  find  it  better  to  call  for  bids  on  each 
item  separately.  In  any  case,  it  is  considered  unwise 
to  call  for  bids  on  a  class  on  which  the  award  is  to  be 
made  as  a  whole,  without  requiring  expressly  that  unit 
prices  be  bid  on  each  item  separately,  in  addition  to 
stating  the  bid  for  the  entire  class.  These  unit  prices 
are  necessary  in  accounting  and  for  proper  comparison 
of  unit  prices  on  each  item  with  prices  formerly  secured 
and  with  current  market  prices.  Without  such  com- 
parison no  intelligent  award  can  be  made.  Unit  prices 
are  also  necessary  to  determine  whether  or  not  bids  are 
unbalanced.  It  is  considered  essential,  also,  that  the 
invitation  for  bids  state  in  plain  and  unmistakable 
terms  that  if  award  be  made  at  all  it  will  be  made  on 
the  class  as  a  whole  rather  than  on  each  item  sepa- 
rately. The  policy  of  stating  in  instructions  to  bidders 
that  award  will  be  made  on  a  class  as  a  whole  or  on 
each  item  separately,  in  the  discretion  of  the  purchas- 
ing office,  obviously  confuses  the  issue  with  dealers  who 
do  not  know  whether  to  figure  their  overhead  and  cost 
of  delivery  as  a  whole  on  the  entire  class  or  on  each 
item  separately.  The  only  safe  way  for  them  to  bid 
on  such  a  proposal  is  separately  on  each  item,  quoting 
a  higher  price  than  if  they  were  bidding  on  the  class 
as  a  whole. 

147 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

Bids  in  the  Alternate.  Bids  in  the  alternate  are  sought 
when  the  purchasing  office  is  in  doubt  as  to  which  of 
two  or  several  methods  of  purchase  is  preferable,  or 
as  to  which  of  two  or  several  items  preference  should 
be  given.  Obviously  if  a  purchasing  office  does  not 
know  which  of  two  specific  items  is  the  cheapest  for  its 
purpose,  time  and  labor  are  saved  by  calling  for  bids  in 
the  alternate  on  both.  The  time  element  may  be  very 
important  if,  during  a  period  of  rapidly  rising  markets, 
it  is  necessary  to  reject  one  item  and  thereupon  adver- 
tise a  proposal  for  and  open  bids  on  the  second.  Bids 
in  the  alternate  are  to  be  restricted  to  cases  of  real  ne- 
cessity, otherwise  bidders  naturally  form  the  conclusion 
that  the  purchaser  does  not  know  his  own  requirements. 

A  common  case  in  which  invitations  for  bids  in  the 
alternate  may  be  found  desirable  occurs  when  it  is  not 
clear  which  of  two  or  more  articles  is  to  be  preferred. 
Thus,  for  example,  the  purchaser  may  be  desirous  of 
comparing  a  new  specification  with  an  old  one,  and  while 
fearful  that  the  new  specification  contains  technicalities 
which  will  restrict  competition,  yet  wishes  to  make  an 
immediate  award. 

Another  common  instance  of  the  usefulness  of  al- 
ternative bidding  is  found  where  it  is  not  clear  as  to 
which  of  two  or  more  points  should  be  used  as  the  basis 
for  figuring  prices,  for  example,  whether  it  is  desirable 
to  seek  prices  f.o.b.  point  of  origin,  or  f.o.b.  point  of 
delivery.  This  is  a  common  method  of  seeking  bids 
in  the  War  Department  for  the  delivery  of  goods,  the 
ultimate  destination  of  which  may  be  a  far  distant  post. 
Bids  are  sought  in  the  alternate  on  quartermasters* 
stores  for  delivery  in  New  York  City  or  in  San  Fran- 
cisco, the  War  Department  taking  into  consideration  in 
making  the  award  the  cost  of  haulage  under  its  spe- 

148 


INVITING  BIDS 

cial  freight  rates  from  New  York  to  the  Pacific  Coast. 

Still  other  cases  in  which  alternative  bidding  is  fre- 
quently of  value  are  where  it  is  not  clear  which  of  two 
or  more  delivery  conditions  are  desirable  (as,  for  ex- 
ample, large  or  small  units,  such  as  lOO  pound  kegs  or 
lo  pound  kegs  of  an  item,  or  large  or  small  quantities 
at  each  delivery) ;  where  it  is  not  clear  whether  class 
or  item  bids  will  secure  the  best  results ;  where  it  is  not 
clear  whether  it  is  more  advantageous  to  purchase  for 
immediate  delivery  or  for  delivery  over  a  period;  and 
where  it  is  not  clear  whether  contracts  should  be  for 
long  or  for  short  terms. 

Among  private  purchasers  invitations  for  bids  in  the 
alternate  are  a  most  common  rpethod  of  resolving  a 
doubt.  Among  governments,  however,  there  is  con- 
siderable opposition  to  this  method  on  the  part  of  ex- 
ecutives and  lawmakers  on  the  ground  that  any  indefi- 
niteness  in  an  invitation  for  bids  necessarily  brings, 
trouble  and  litigation, — the  same  ground  that  so  often 
leads  to  the  use  of  a  specification  definite  and  explicit 
in  every  respect  even  though  competition  be  needlessly 
restricted  thereby.  The  use  of  invitations  for  bids  in 
the  alternate  is  found  to  be  unavoidable,  however,  by 
governments  which  are  undertaking  to  conform  their 
purchasing  methods  to  changing  requirements  and 
shifting  market  conditions.  The  purchasing  depart- 
ment of  Baltimore  submits  to  dealers  alternative  meth- 
ods of  bidding  on  perhaps  the  majority  of  its  contract 
purchases.  Thus,  on  "janitors'  supplies"  it  calls  for 
"prices  to  apply  if  contract  is  bid  on  and  awarded  for 
immediate  delivery"  and  at  the  same  time  for  "prices 
to  apply  if  contract  is  bid  on  and  awarded  for  interval 
delivery."  On  "lubricating  and  illuminating  oils, 
greases,  candles  and  bituminous  materials,"  it  calls  for 

149 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

"prices  to  apply  if  contract  is  bid  on  and  awarded  in  the 
entirety,"  that  is,  on  classes,  and  also  for  "prices  to 
apply  if  contract  for  each  item  is  bid  on  and  awarded 
separately." 

Homogeneous  Invitations  for  Bids.  Closely  connected 
with  the  question  of  combining  related  articles  in  classes 
for  the  bidding  itself  is  that  of  following  a  similar  clas- 
sification in  the  preparation  of  the  printed  matter  or 
other  media  of  publicity  through  which  bids  are  invited 
or  solicited.  The  necessity  of  observing  some  such 
classification  is  so  obvious  that  comment  upon  it  would 
seem  superfluous;  yet  it  is  nothing  uncommon  to  find 
invitations  for  bids  issued  by  governments,  occasionally 
even  by  private  purchasing  agencies,  embracing  the 
widest  variety  of  items.  For  example,  an  invitation  for 
bids  issued  before  the  installation  of  the  plan  of  con- 
solidating contracts  by  a  certain  department  of  New 
York  City  included  items  of  hardware,  dry  goods  and 
food.  It  is  obvious  from  some  invitations  for  bids  that 
purchase  requisitions  have  received  not  the  slightest 
classification,  rearrangement  or  elaboration  of  de- 
scription before  being  used  in  the  preparation  of  an  in- 
vitation for  bids. 

If  bids  are  sought  from  large,  special  dealers,  it  is 
obvious  that  their  attention  must  be  called  to  specific 
items  as  distinctly  as  possible.  A  busy  specialist  who 
possibly  has  all  of  the  wholesale  business  which  he  cares 
to  handle  will  hardly  be  interested  in  an  unclassified 
miscellaneous  proposal,  including  perhaps  only  a  few 
items  in  which  he  would,  under  any  circumstances,  be 
interested,  and  for  which  he  is  compelled  to  hunt 
through  many  pages.  If  bids  are  sought  from  manu- 
facturers and  from  large  wholesalers,  it  is  clear  that 

150 


INVITING  BIDS 

specialized  proposals  must  be  used,  bringing  the  items 
desired  distinctly  to  the  attention  of  the  dealer  whose 
bid  is  desired. 

The  preparation  of  homogeneous  proposals  is  bene- 
ficial, also,  in  its  reaction  upon  the  purchasing  office,  in 
that  it  logically  leads  the  purchasing  office  to  seek  com- 
petition from  specialists  rather  than  from,  jobbers,  sup- 
ply houses  and  retailers.  If  a  purchasing  office  gets  in 
the  habit  of  preparing  miscellaneous  proposals,  it  is 
only  natural  that  they  should  be  sent  to  dealers  in  mis- 
cellaneous articles — in  short,  to  retailers  or  supply 
houses  rather  than  to  manufacturers  or  wholesalers. 

Homogeneous  proposals  save  considerable  expense  in 
printing  and  in  the  work  of  preparing  contract  pro- 
posals. For  example,  the  miscellaneous  proposal  of  the 
fire  department  of  New  York  City,  including  several 
thousand  items,  such  as  repairs  to  automobiles,  lubri- 
cants, paints  and  oils,  hardware,  etc.,  when  given  out 
in  duplicate  to  dealers  in  each  of  the  several  lines  upon 
which  bids  were  desired,  required  over  twice  as  many 
copies  of  the  entire  schedule  as  there  were  prospective 
bidders.  When,  in  addition  to  the  body  of  the  schedule 
itself,  each  schedule  is  accompanied  by  a  complete  set 
of  specifications  referred  to  therein,  the  mass  of  printed 
matter  given  to  each  dealer  is  very  large  indeed.  On 
the  other  hand,  when,  as  in  the  case  of  invitations  for 
bids  of  the  General  Supply  Committee  of  the  federal  gov- 
ernment, each  class  is  given  out  separately,  the  station- 
ery proposal  to  stationery  dealers  and  manufacturers, 
the  hardware  schedule  to  hardware  dealers  and  manu- 
facturers, obviously  there  is  great  saving  in  expense 
of  printed  matter. 


CHAPTER  X 
PURCHASE  AGREEMENTS 

It  is  possible  of  course  for  a  purchasing  agent  to  state 
his  purchase  requirements  in  the  broadest  possible  terms, 
merely  asking  dealers  to  submit  their  own  propositions 
and  then  choosing  from  among  these  propositions  the 
ones  which  appear  best.  This  method  is  often  used 
under  new  conditions  where  the  purchasing  agent  is  not 
certain  as  to  his  best  method.  But  obviously  it  is  not 
a  method  which  creates  for  the  purchaser  a  reputation 
for  knowledge  of  his  purchase  requirements  and,  there- 
fore, it  is  used  only  in  emergencies,  such,  for  example, 
as  may  arise  in  times  of  chaotic  market  conditions  dur- 
ing which  neither  the  purchaser  nor  dealers  know  what" 
may  be  the  conditions  of  to-morrow.  Besides  increas- 
ing the  trading  reputation  of  the  purchaser  for  knowl- 
edge of  his  purchase  requirements  and  of  market  con- 
ditions, a  definite  statement  of  a  proposition  simplifies 
the  work  both  of  vendors  and  of  the  purchaser.  Fur- 
thermore, in  the  great  majority  of  cases  it  is  possible, 
at  least  under  normal  market  conditions,  to  determine 
upon  a  best  method  of  purchase. 

It  is  obvious  that  a  choice  of  a  best  method  of  pur- 
chase requires  constant  watchfulness  on  the  part  of  the 
purchasing  agent,  no  matter  how  uniform  his  require- 
ments may  be.  No  modern  purchasing  agent,  private 
or  governmental,  need  be  told  that  the  adoption  of  a 
stereotyped  method  of  purchase  and  form  of  purchase 
agreement  for  all  articles  and  for  all  market  conditions 

152 


PURCHASE  AGREEMENTS 

would  secure  far  from  the  best  results  both  in  prices 
and  delivery  service.  This  is  a  truism  which  it  is 
scarcely  necessary  to  state  so  far  as  concerns  the  pur- 
chases of  an  industrial  plant  or  of  a  railroad,  and  so  far 
also  as  concerns  the  purchases  of  many  governmental 
units,  but  a  great  number  of  our  cities,  states,  counties 
and  even  some  units  of  the  federal  government  have 
adopted  stereotyped  methods  of  purchase  which  make 
it  impossible  for  the  purchasing  agent  to  exercise  real 
skill  and  judgment  in  the  choice  of  a  method  best 
adapted  either  to  his  requirements  or  to  changing  mar- 
ket conditions. 

A  wide  disparity  exists  between  private  and  govern- 
mental practice  with  respect  to  the  definiteness  of  the 
terms — as  regards  the  article  to  be  supplied  and  the 
conditions  of  delivery  and  payment — in  which  purchase 
agreements  or  contracts  are  drawn.  While  the  pur- 
chase agreements  of  business  corporations  are  gener- 
ally indefinite  on  several  of  these  points,  those  of  gov- 
ernments are  frequently  definite  in  every  respect.  It 
will  be  of  value,  therefore,  to  consider  the  relative  merit 
of  definiteness  and  indefiniteness  in  purchase  agreements 
with  a  view  to  formulating  a  proper  standard  of  prac- 
tice for  government  purchasing  in  this  matter. 

Advantages  and  Disadvantages  of  Definiteness  in  Pur- 
chase Agreements.  Undoubtedly  there  are  numerous 
cases  in  which  definiteness  of  purchase  agreements  has 
elements  advantageous  to  the  purchaser.  Many  admin- 
istrators, particularly  in  governments,  prefer  that  all 
purchase  agreements  shall  be  definite  in  all  respects  in 
order  that  there  may  be  definite  encumbrances  against 
funds.  The  comptrollers  and  other  accounting  officials 
of  many  cities  require  that  purchase  agreements  shall 

153 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

be  so  definite  as  to  permit  of  fixed  encumbrances  being 
made  against  appropriations  and  allotments.  Admin- 
istrative officers  of  many  governments  also  prefer  that 
their  future  obligations  shall,  thus  be  definitely  deter- 
mined. Undoubtedly  definiteness  of  purchase  agree- 
ments is  a  natural  result  of  the  requirement  that  no 
expenditure  shall  be  made  unless  a  balance  sufficient  to 
cover  it  remains  in  a  proper  appropriation.  Definite- 
ness of  purchase  agreements  simplifies  bookkeeping,  es- 
pecially in  a  government  of  very  large  expenditures,  and 
thereby  aids  in  keeping  within  appropriations.  The 
question  naturally  arises,  however,  whether  practically 
the  same  results  may  not  be  secured  by  the  setting  up 
of  tentative  rather  than  fixed  encumbrances  against  ap- 
propriations and  allotments.  Unless  the  purchase 
agreement  be  binding  and  most  rigidly  so,  the  encum- 
brance is  in  any  case  tentative,  and  even  in  the  case  of 
a  rigidly  binding  agreement  the  encumbrance  may  be 
altered  by  a  cancellation  of  the  contract. 

Again,  definiteness  of  purchase  agreements  tends  to 
stabilize  markets.  If  all  purchasers  of  a  given  article 
purchased  under  agreements  of  equal  definiteness  as 
to  all  points,  market  conditions  as  to  that  article  would 
be  greatly  simplified  for  the  period  of  such  agreements. 
Emergency  purchases  of  large  quantities  of  an  article 
are  bound  to  throw  the  market  for  that  article  into  a 
chaotic  condition. 

Lastly,  one  of  the  chief  arguments  advanced  by  law- 
makers and  by  government  administrators  for  a  pref- 
erence in  favor  of  definiteness  of  agreement  is  that  it 
tends  to  avoid  collusive  unbalanced  bidding  when  bids 
are  sought  on  classes  rather  than  on  separate  items. 

The  disadvantages  of  definiteness  of  agreement  from 
the  standpoint  of  the  purchaser  are  equally  clear.    If  a 

154 


PURCHASE  AGREEMENTS 

purchase  agreement  be  definite  as  to  quantities  to  be 
delivered  and  the  agreement  be  binding,  the  purchaser 
may  find  himself  in  a  position  where  he  is  compelled 
to  accept  deliveries  of  articles  which  he  does  not  need 
on  account  of  changes  in  plans.  A  purchaser  under 
such  an  agreement  may  also  find  himself  unable  to  take 
advantage  of  improved  articles  which  may  appear  on 
the  market.  So,  too,  he  may  find  that  he  has  underes- 
timated the  quantities  which  he  will  require  during  a 
given  period  and  be  under  the  necessity  of  purchasing 
in  an  adverse  market;  he  may  find  during  the  course  of 
a  long-time  purchase  agreement  of  fixed  duration  that 
his  purchase  price  is  considerably  higher  than  the  cur- 
rent market  price,  or  that  the  dealer  has  quoted  him  a 
considerably  higher  price  than  he  would  have  quoted 
under  an  informal,  indefinite  agreement. 

Again,  in  case  the  purchasing  office  requires  definite 
estimates  from  each  division  or  office,  considerable  de- 
lay is  likely  to  ensue.  Thus,  it  has  been  the  experi- 
ence of  New  York  City,  and  probably  of  all  cities  which 
are  making  consolidated  contracts  for  definite  quanti- 
ties of  given  articles,  that  it  is  very  difficult  to  secure 
timely  submission  of  estimated  quantities  from  all  de- 
partments. Moreover,  there  is  in  the  case  of  govern- 
ments which  make  their  purchase  agreements  in  the 
form  of  binding  contracts  the  difficulty  that  the  pur- 
chaser may  find  that  he  has  needlessly  encumbered  ap- 
propriations. There  are  frequent  examples  of  over- 
estimating on  government  purchase  contracts,  thus 
needlessly  tying  up  funds  required  for  other  purposes. 

From  the  standpoint  of  the  government  purchaser, 
however,  perhaps  the  chief  merit  of  definiteness  of 
agreement  is  its  usefulness  in  holding  the  vendor  to  his 
contract.     The  fact  that  the  private  purchaser  may  ex- 

155 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

elude  from  competition  all  vendors  who  cannot  be  re- 
lied upon  to  make  satisfactory  deliveries  makes  possi- 
ble agreements  of  the  most  informal  nature;  whereas 
in  governments  where  competition  must  be  open  to  all 
and  often  the  award  made  to  the  lowest  bidder,  it  is 
felt  that  only  by  purchase  agreements  that  are  definite 
and  binding  is  adequate  protection  furnished  against 
unreliable  deliveries. 

From  the  standpoint  of  the  vendor,  the  chief  advan- 
tage of  definiteness  in  purchase  agreements  is  the  elim- 
ination of  the  speculative  element.  Particularly  is  this 
important  with  respect  to  the  total  quantity  the  vendor 
will  be  called  upon  to  furnish,  for  in  making  his  bid  the 
vendor  must  figure  carrying  charges  such  as  storage, 
taxes,  insurance,  etc.,  during  the  period  of  the  agree- 
ment, and  he  must  also  assure  himself  of  a  definite 
source  of  supply  at  the  time  of  making  his  bid.  Defi- 
niteness as  to  the  total  period  during  which  he  must 
deliver  is  chiefly  important  to  a  vendor  in  case  of  ab- 
normal market  conditions.  Under  such  conditions, 
even  in  the  case  of  articles  which  are  normally  easy  to 
procure,  it  is  often  essential  to  the  dealer  that  the  pe- 
riod of  his  agreement  be  short  and  definite. 

Definiteness  as  to  frequency  of  delivery  and  quantity 
at  each  delivery  is  important  to  a  dealer  in  figuring 
his  bid  when  delivery  expenses  may  be  large.  Thus, 
if  a  dealer  does  not  know  when  he  prepares  his  bid 
whether  he  may  be  called  upon  to  deliver  a  small  quan- 
tity, perhaps  a  broken  package,  or,  on  the  other  hand, 
to  make  a  bulk  delivery,  in  order  to  protect  himself  in 
bidding,  he  must  make  due  allowance  for  possible  small 
deliveries.  Frequency  of  delivery  and  quantity  at  each 
delivery  is  also  extremely  important  to  a  bidder  in  case 
he  counts,  as  he  frequently  must,  on  securing  his  sup- 

156 


PURCHASE  AGREEMENTS 

ply  from  time  to  time  rather  than  buying  it  in  bulk  and 
storing  it  in  quantities  sufficient  to  meet  the  entire  con- 
tract. 

Definiteness  as  to  place  of  delivery  and  as  to  delivery 
conditions  at  each  place  is  especially  important  if  de- 
liveries are  to  be  made  in  large  quantities.  For  exam- 
ple, in  the  case  of  coal  the  dealer  should  know  how  long 
his  haul  must  be,  or  whether  it  is  possible  for  him  to 
deliver  in  carload  lots,  and  what  work  he  is  called  upon 
to  perform  at  each  delivery  point.  In  the  case  of  a 
purchase  agreement  even  for  articles  which  are  not 
bulky,  the  bidder  is  at  a  disadvantage  and  must  raise 
his  price  accordingly  if  he  is  uninformed  whether  he 
must  make  deliveries  to  one  point  or  another  within  a 
city,  especially  if  he  is  not  provided  with  a  well  devel- 
oped delivery  system. 

Definiteness  as  to  price  may  or  may  not  eliminate  the 
speculative  element  to  dealers.  It  does  remove  the 
speculative  element  in  case  the  dealer  counts  on  pur- 
chasing in  bulk  and  storing  to  cover  the  whole  purchase 
agreement.  In  such  cases  it  is  possible  for  him  to  fig- 
ure his  probable  profit  with  accuracy.  It  may  not  re- 
move the  speculative  element  as  to  price  if  the  dealer 
is  under  the  necessity  of  purchasing  from  time  to  time 
to  meet  his  delivery  requirements. 

In  the  case  of  some  articles  definiteness  of  purchase 
agreements  enables  a  successful  bidder  to  enter  into 
a  large  transaction  which  would  be  impossible  without 
such  definiteness.  Thus,  if  a  wholesale  grocer  has  an 
opportunity  to  bid,  as  he  frequently  does  in  New  York 
City,  upon  lOO  tons  or  more  of  sugar  to  be  delivered 
over  a  definite  period  to  the  departments  of  the  city, 
he  can  use  this  agreement  as  the  basis  for  a  much  larger 
purchase,  the  balance  to  be  sold  at  higher  prices  pos- 

157 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

sibly  than  that  quoted  by  him  in  the  basic  agreement. 
The  disadvantages  of  definiteness  of  agreement  to 
the  vendor  may  be  stated  practically  as  the  converse  of 
the  advantages  of  definiteness  of  agreement.  Binding 
purchase  agreements  for  definite  quantities,  definite  pe- 
riods, definite  frequency  of  delivery  and  quantity  at 
each  delivery,  place  of  delivery,  price,  etc.,  may  increase 
the  speculative  element  to  the  dealer  instead  of  reduc- 
ing it,  particularly  if  the  period  of  the  agreement  be 
long  and  the  quantities  large.  In  order  to  be  safe  it 
may  be  necessary  for  the  bidder  in  setting  his  price  to 
figure  on  a  purchase  in  bulk  with  heavy  carrying  charges 
during  the  contract  period,  or  it  may  be  necessary  for 
him  to  figure  on  entering  into  an  agreement  at  a  high 
price  to  assure  himself  of  a  source  of  supply.  The  only 
alternative  may  be  assumption  of  the  risk  involved  in 
securing  necessary  quantities  to  meet  deliveries  as  re- 
quired. If  this  risk  is  large,  an  experienced  dealer  is 
of  course  compelled  to  fix  his  price  high  in  order  to 
protect  himself.  Under  uncertain  market  conditions 
this  is  the  inevitable  result  among  experienced  dealers, 
except  those  who  are  business  gamblers.  Government 
agencies  and  private  companies  throughout  the  coun- 
try have  recently  had  many  examples  of  this  due  to 
shortage  of  supply  and  increased  demand  in  many  fields 
of  purchase.  Thus,  New  York  City  found  in  calling 
for  bids  upon  coal  some  three  months  previous  to  the 
strike  anticipated  in  April,  1916,  at  a  time  also  when 
transportation  conditions  were  very  bad,  that  prices  bid 
for  definite  quantities  to  be  delivered  over  a  definite 
period  were  extremely  high.  A  great  majority  of  the 
bids  were  rejected  and  time  to  time  purchases  made  in 
the  open  market  under  special  permission  from  the 
board  of  aldermen,  with  the  result  that  out  of  $100,000 

158 


PURCHASE  AGREEMENTS 

expended  under  this  permission  there  was  a  saving  of 
approximately  25  per  cent  over  the  prices  rejected. 

Contracts  Indefinite  in  One  or  More  Respects.  The  bal- 
ance of  the  considerations  just  reviewed,  with  respect 
to  the  advantages  and  disadvantages  of  definiteness  in 
contracts,  generally  inclines  in  the  opinion  of  commer- 
cial purchasing  agents  in  favor  of  indefiniteness  of 
agreement  in  one  or  more  respects.  Contracts  indefi- 
nite as  to  article,  quantity,  period,  frequency  of  delivery, 
place  of  delivery,  or  other  delivery  conditions,  and  price, 
are  entered  into  to  meet  changing  requirements. 

Indefiniteness  as  to  article  is  infrequent.  When  the 
article  becomes  indefinite  in  a  purchase  agreement,  the 
agreement  becomes  rather  one  for  the  purchase  of  a 
service  than  the  purchase  of  articles.  Examples  of  this 
are  found  in  the  case  of  railroads  and  some  other  cor- 
porations, or  units  of  corporations,  such,  for  example, 
as  the  street  cleaning  department  of  New  York  City  in 
the  purchase  of  lubrication,  contracts  being  entered  into 
for  the  furnishing  of  lubricants  of  a  quality  suitable 
for  the  needs  of  the  corporation's  rolling  stock.  An- 
other example  of  the  same  sort  of  indefiniteness  as  to 
article  is  in  the  purchase  of  tire  service  by  some  large 
users  of  automobiles,  the  contractors  undertaking  to 
furnish  tire  mileage  rather  than  specific  tires. 

A  frequent  form  of  contract  indefinite  as  to  quan- 
tity is  one  which  states  a  minimum  below  which  the 
purchaser  will  not  go  in  calling  for  deliveries,  but  above 
which  he  does  not  bind  himself.  Another  frequent 
form  of  contract  indefinite  as  to  quantity  is  that  which 
requires  the  dealer  to  deliver  up  to  a  maximum  but 
leaves  him  free  to  refuse  delivery  beyond  this  maxi- 
mum.    Frequently   the   minimum    and   maximum    are 

159 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

combined  in  the  same  agreement,  with  possibly  consid- 
erable latitude  between  the  minimum  and  the  maxi- 
mum. The  amount  of  the  difference  between  the  mini- 
mum and  the  maximum  varies  with  the  degree  of  cer- 
tainty as  to  market  conditions  and  with  the  purchaser's 
certainty  as  to  his  requirements.  Contracts  which  re- 
quire dealers  to  deliver  an  indefinite  quantity  of  a  given 
article  without  minimum  or  maximum  during  a  stated 
period  are  also  frequent  among  private  purchasers  un- 
der normal  market  conditions.  During  disturbed  mar- 
ket conditions  indefiniteness  as  to  quantity  in  purchase 
agreements  is  unusual;  this  is  particularly  true  during 
the  chaotic  conditions  resulting  from  the  war.  Dealers 
now  demand  that  quantities  be  definite  even  of  articles 
usually  most  easy  to  procure,  that  the  periods  of  agree- 
ment be  short  or  even  that  delivery  be  immediate.  It 
is  practically  impossible  in  the  case  of  a  great  many 
lines  of  goods,  particularly  metals,  chemicals,  rubber 
and  paper,  to  find  any  dealers  willing  to  take  the  risk 
involved  in  an  agreement  at  a  fixed  price  but  indefinite 
as  to  quantity  for  any  but  the  shortest  periods  and  at 
the  highest  prices. 

With  indefiniteness  of  quantity  is  often  combined,  in 
the  purchase  agreements  of  private  companies,  indefi- 
niteness of  period.  Under  such  agreements  the  ven- 
dor undertakes  to  furnish  the  purchaser's  requirements 
above  a  minimum,  below  a  maximum,  or  with  no  mini- 
mum and  maximum,  during  a  period  of  indefinite  dura- 
tion until  either  party  to  the  agreement  shall  give  no- 
tice of  its  cancellation.  It  is  probable  that  such  agree- 
ments are  not  enforcible  as  contracts  on  account  of  lack 
of  definiteness  and  often  also  on  account  of  lack  of  mu- 
tuality, since  many  such  agreements  while  purporting 
to  bind  one  party  leave  the  other  party  free. 

1 60 


PURCHASE  AGREEMENTS 

Indefiniteness  as  to  frequency  of  delivery  and  quan- 
tity at  each  delivery  is  common  both  among  private  pur- 
chasers and  among  governments.  Occasionally  the 
vendor  undertakes  to  furnish  articles  wherever  he  may 
be  required.  Examples  of  this  type  of  indefiniteness  in 
purchase  agreements  are  the  contracts  of  the  General 
Supply  Committee  of  the  federal  government  which  re- 
quire dealers  to  deliver  specific  articles  to  any  office 
within  the  District  of  Columbia  and  also  to  certain  field 
services  upon  request. 

Agreements  indefinite  as  to  price,  under  which  ven- 
dors undertake  to  furnish  given  articles  at  a  price 
which  may  vary  from  time  to  time  with  changing  mar- 
ket conditions,  are  not  infrequent.  For  example,  the 
agreement  may  be  that  the  price  at  which  deliveries  of 
the  article  are  to  be  made  shall  vary  with  current  mar- 
ket prices  either  for  the  article  itself  or  for  an  impor- 
tant constituent  element  thereof.  Thus,  agreements  are 
entered  into  by  many  private  purchasers  and  also  by 
many  governmental  agencies  for  the  purchase  of  gaso- 
line at  a  price  varying  with  the  current  market  price. 
In  some  cases  purchase  agreements  may  be  at  a  stated 
price,  with  the  understanding  that  if  the  vendor  dur- 
ing the  period  of  the  agreement  gives  a  lower  price  to 
any  other  purchaser  he  will  allow  the  same  price  to  the 
purchaser  with  whom  he  has  the  agreement. 

It  is  a  customary  method,  employed  by  probably  the 
great  majority  of  private  purchasers  during  normal 
market  conditions,  to  cover  purchase  requirements  so 
far  as  possible  by  informal  purchase  agreements.  These 
take  various  forms  and  involve  all  degrees  of  indefi- 
niteness. Under  some  price  agreements  the  vendor 
agrees  to  maintain  a  stock  in  order  to  guarantee  deliv- 
eries when  required  and  the  purchaser  on  his  part  agrees 

i6i 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

on  cancelling  the  contract  to  relieve  the  vendor  of  any- 
surplus  stock.  Such  agreements  of  course  are  only  in 
the  case  of  special  items  on  which  vendors  would  find 
it  difficult  to  find  a  market  for  excess  stock. 

A  common  practice  among  many  private  purchasers, 
particularly  among  large  users  of  supplies,  is  to  issue 
a  monthly  invitation  for  prices  on  a  schedule  with  no 
quantities  stated.  Such  a  schedule  merely  states  in 
broad  terms  the  nature  of  the  requirements,  leaving  it 
to  the  bidder  to  name  with  his  monthly  price  the  precise 
article  which  he  will  undertake  to  deliver.  The  prices 
secured  on  such  monthly  schedules  are  usually  merely 
quotations  which,  as  a  rule,  will  not  be  considered  bind- 
ing upon  the  vendor  in  case  he  chooses  not  to  deliver. 
This  method  is  used  by  many  railroads — for  example, 
the  Northern  Pacific  Railroad — and  also  by  many  in- 
dustrial corporations,  among  these  being  the  Semet- 
Solvay  and  the  Solvay  Process  Companies.  Many  pur- 
chasers consider  this  method  a  poor  one,  however,  for 
the  reason  that  bidders  disappointed  at  not  securing 
the  business  during  one  month  naturally  conclude  that 
the  goods  which  they  offered  were  of  too  high  a  qual- 
ity and,  therefore,  during  the  next  month  submit  a  price 
on  an  inferior  quality,  the  tendency  being  to  steadily 
lower  the  standard  of  goods  offered.  Obviously  this 
need  not  be  the  case  if  due  care  is  used  by  the  purchas- 
ing agent  in  selecting  a  brand  each  month  from  sam- 
ples, trade  names  or  catalogue  references  submitted 
with  bids. 

Some  purchasers  are  in  the  habit  of  using  a  price 
offered  by  a  dealer  as  a  quotation  on  a  specific  quantity 
so  long  as  the  dealer  is  willing  to  make  deliveries  at 
this  price.  This  is  the  method  usually  used  by  the  New 
York  Central  Railroad,   with   the  restriction  that  no 

162 


PURCHASE  AGREEMENTS 

price  shall  be  used  for  a  longer  period  than  three  months 
without  renewing  competition  to  better  it  if  possible. 
It  cannot  be  said  that  this  method  is  unfair  to  dealers 
as  they  are  not  forced  to  fill  a  purchase  order  under  these 
conditions  unless  they  wish  to,  but  in  many  cases  it  is 
probable  that  rather  than  protest  a  price  as  being  un- 
profitable a  dealer  will  meet  a  purchase  order  hoping 
thereby  to  secure  future  profitable  business  from  the 
purchaser.  Obviously  this  method  saves  considerable 
time,  though  it  must  be  supplemented  in  many  cases  by 
informal  or  formal  price  agreements  and  also  in  the 
case  of  many  articles  by  frequently  renewing  competi- 
tion on  specific  quantities. 

Purchase  Agreements  in  Government  Purchasing.    The 

use  of  the  varied  types  of  purchase  agreements  just 
described  is  much  less  common  in  governments  than  in 
private  practice.  The  advantages  which  are  thought  to 
flow  from  definiteness  in  purchase  agreements  in  gov- 
ernments have  already  been  discussed,  and  a  recogni- 
tion of  those  advantages  has  become  crystallized  in  the 
legal  codes  or  in  the  administrative  practice  of  many 
municipalities  and  other  governmental  agencies  which 
might  with  much  advantage  adopt  a  far  greater  flexi- 
bility in  their  purchase  methods. 

A  notable  instance  of  a  large  governmental  agency 
which  adheres  to  an  extreme  of  inflexibility  in  pur- 
chase agreements  is  the  city  of  New  York.  Despite 
the  wide  variety  in  the  form  of  purchase  agreements 
which  the  extensive  and  many-sided  business  of  the  city 
makes  desirable  and  practicable,^   a  stereotyped  form 

^  In  a  most  instructive  monograph  entitled  "A  Central  Purchasing 
Agency  for  the'  City  of  New  York,"  which  is  reprinted  on  pp.  255- 
270,  Mr.  W.  V.  S.  Thorne,  formerly  director  of  purchases  of  the 
Union  Pacific  and  Southern  Pacific  Railway  Systems,  and  later  vice- 

163 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

of  purchase  contract  is  used  for  virtually  all  purchases 
over  $i,ooo  in  amount  (for  which  formal  contracts  are 
required  by  law)  and  for  many  purchases  of  less 
amount.  The  city  ordinances  require  that  contracts 
shall  be  as  definite  as  possible  in  every  respect,  and  the 
city  charter,  by  implication  at  least,  forbids  contracts 
having  a  latitude  as  to  total  amount  involved  of 
more  than  5  per  cent  more  or  less  than  the  amount 
stated  in  the  contract.  By  far  the  great  majority  of 
contracts  for  supplies  and  materials,  therefore,  are  defi- 
nite in  every  respect  whether  or  not  market  conditions 
require  such  definiteness  and  whether  or  not  the  city 
is  a  gainer  or  loser  thereby.  They  bind  the  vendor  to 
deliver  definite  quantities  over  a  definite  period  at  defi- 
nite places  and  with  considerable  definiteness  as  to  fre- 
quency of  delivery  and  quantity  at  each  delivery.  A 
contract  involving  a  price  varying  with  market  condi- 
tions over  a  stated  period  is  unknown  among  purchase 
contracts  of  the  city  of  New  York. 

This  instance  is,  however,  extreme,  and  to  an  in- 
creasing extent  governmental  purchasing  officers  are  to 
be  found  adopting  the  varied  forms  of  purchase  agree- 
ment developed  in  commercial  practice. 

Informal  requests  for  quotations  which  hold  good  for 
a  stated  period  are  frequently  used  to  advantage  by  a 
government  purchasing  agent.  For  example,  the  drug 
laboratory  of  the  department  of  public  charities  of  New 
York  City  finds  this  method  especially  advantageous 
during  the  present  disturbed  market  conditions.  When- 
ever quantities  required  do  not  amount  to  the  $1,000, 

president  of  the  Union  Pacific  System  in  charge  of  purchases  and  sup- 
plies, gives  illustrations  of  many  varieties  of  price  agreements  in- 
stalled by  him  for  the  railway  and  steamship  systems  for  which 
he  purchased,  which  he  deems  equally  practicable  for  New  York 
City. 

164 


PURCHASE  AGREEMENTS 

which  under  the  charter  of  New  York  City  necessitates 
a  formally  advertised  contract  proposal,  and  when  it 
appears  that  advantage  will  be  gained  by  requests  for 
bids  on  immediate  deliveries  of  definite  quantities,  in- 
formal invitations  for  bids  are  sent  to  leading  sources 
of  supply.  This  is  often  done  on  a  schedule  or  list  which 
states  most  definitely  the  purchaser's  requirements. 

The  use  by  governments  of  informal  understandings, 
which  may  be  canceled  at  any  time  by  the  purchaser 
or  by  the  dealer,  is  infrequent.  Purchase  agreements 
either  formal  or  informal  which  permit  a  fluctuation 
in  price  to  meet  market  conditions  or  to  meet  any  re- 
duction in  price  to  any  other  purchaser  are,  however, 
often  found  in  city  governments.  As  above  stated, 
New  York  City  permits  no  such  fluctuation,  but  Phila- 
delphia is  free  to  adopt  this  method  when  it  considers 
it  advantageous.  Cleveland  and  Dayton,  Ohio,  pur- 
chase gasoline  under  contracts  which  permit  fluctuation 
in  price  with  current  market  prices.  Baltimore  custo- 
marily inserts  in  its  instructions  to  bidders  on  contracts 
that  ''prices  offered  by  the  bidder  are  mutually  under- 
stood by  the  parties  to  be  subject  to  any  variation  in 
the  published  railroad  tariffs  applying  on  shipments, 
the  city  paying  any  increase  in  such  freight  rates  made 
by  the  railroad  and  likewise  benefiting  by  any  decrease 
in  authorized  published  tariffs." 

There  appears  to  be  a  tendency  among  purchasing 
agents  for  cities  to  enter  into  contracts,  so  far  as  pos- 
sible and  practicable,  indefinite  in  quantities,  but,  as 
previously  stated,  this  is  often  forbidden  by  law  or  ad- 
ministrative regulation.  On  the  other  hand,  there  are 
many  examples  among  governments  of  extreme  indefi- 
niteness  of  quantity,  the  governments  being  required  by 
law  to  secure  prices  on  schedules  which  cover  deliver- 

165 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ies  during  a  stated  period  but  which  are  not  binding 
upon  the  purchaser.  Thus,  the  purchasing  agents  of 
many  cities  are  required  at  the  beginning  of  the  fiscal 
year  or  just  previous  thereto  to  secure  estimates  from 
their  departments  of  purchase  needs  for  the  fiscal  year 
and  to  secure  prices  thereon,  such  prices  to  hold  good 
for  the  entire  year  though  with  no  guaranty  that  any 
definite  quantities  will  be  bought. 

The  practice  of  Philadelphia  in  this  respect  is  illus- 
trative. For  most  items  the  schedules  issued  in  invit- 
ing bids  omit  even  estimated  quantities.  The  period 
of  the  prospective  agreement  is,  however,  definitely 
stated  in  the  invitation  for  bids,  and  the  dealer  is  called 
upon  to  state  a  price  at  which  he  will  deliver  each  item 
during  this  period.  Before  contract  is  entered  into, 
however,  the  maximum  amounts  thereof  are  determined 
in  accordance  with  the  then  unexpended  portion  of  the 
proper  appropriation.  During  the  contract  period  the 
maximum  amount  of  money  involved  at  any  time  is  al- 
ways definite,  but  the  total  quantity  of  each  item  to  be 
purchased  remains  indefinite.  It  is  expressly  stated  in 
the  instructions  to  bidders  that  quantities  where  speci- 
fied are  only  estimated  and  may  be  more  or  less.  Obvi- 
ously this  method  requires  considerable  knowledge  on 
the  part  of  dealers  as  to  the  city's  probable  needs  in 
order  to  make  it  safe  for  them  to  submit  a  definite  price 
at  which  they  will  furnish  goods  during  a  long  contract 
period,  such  as  a  fiscal  year.  In  the  case  of  the  invita- 
tion for  bids  on  milk,  estimated  quantities  are  usually 
furnished.  In  the  case  of  metals  (iron,  brass,  bronze, 
steel  and  malleable  castings)  no  estimated  quantities 
are  given,  the  price  being  sought  merely  per  pound  for 

the  period  of  a  fiscal  year. 

i66 


PURCHASE  AGREEMENTS 

The  General  Supply  Committee  of  the  Federal  Govern- 
ment. Probably  the  foremost  governmental  example  of 
purchase  agreements  indefinite  as  to  quantity  is  fur- 
nished by  the  so-called  General  Supply  Committee  of  the 
federal  government.  This  committee,  established  by  act 
of  Congress  in  1910,  consists  of  representatives  of  the 
several  departments  in  Washington  delegated  to  aid  the 
Secretary  of  the  Treasury  in  entering  into  contracts  for 
articles  required  by  two  or  more  departments.  Through 
this  committee  contracts  are  entered  into  for  the  esti- 
mated "requirements"  of  the  several  departments  in 
Washington  and  for  such  of  their  field  services  as  are 
specifically  mentioned  in  the  schedules.  They  cover,  for 
example,  all  of  the  civil  departments  in  Washington, 
the  requirements  for  the  field  service  of  the  Weather 
Bureau  and  of  practically  all  of  the  bureaus  of  the- 
Treasury  Department. 

The  procedure  in  compiling  the  annual  schedules  of 
contracts  is  as  follows:  In  the  fall  of  each  year  the 
General  Supply  Committee  begins  the  preparation  of  its 
schedules  for  the  following  fiscal  year  which  is  to  com- 
mence some  eight  months  hence.  The  items  included 
are  those  on  the  current  year's  schedule  with  such  ad- 
ditional items  as  the  departments  may  desire.  The  es- 
timated quantities  placed  against  each  item  for  the  deal- 
er's information  are  the  total  quantities  purchased  by 
all  departments  during  the  preceding  fiscal  year,  that 
is,  during  a  period  beginning  twenty-four  months  prior 
to  the  beginning  of  the  period  the  dealer  is  asked  to  bid 
upon.  A  schedule  is  prepared  for  each  of  the  twenty 
classes  of  items  on  which  prices  are  to  be  secured.  Thus, 
a  schedule  is  prepared  for  stationery,  paper  and  paper 
articles,  and  drafting  supplies;  one  is  prepared  for  hard- 
ware, metals,  leather  and  saddlery;  one  for  drugs,  med- 

167 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

icines  and  chemicals ;  one  for  dry  goods,  clothing,  boots 
and  shoes,  etc. ;  one  for  electrical,  engineering  and 
plumbing  supplies;  one  for  groceries  and  provisions, 
meat  and  meat  products,  fish  and  household  supplies; 
one  for  photographic  supplies,  etc.  These  schedules  are 
advertised  in  January  or  February  and  mailed  to  deal- 
ers v^^ho  have  previously  bid  or  who  have  requested  that 
they  be  placed  upon  the  mailing  list.  In  the  instructions 
to  bidders  it  is  stated  that  the  period  to  be  covered  is  a 
fiscal  year  from  July  i  to  June  30  and  that  the  quan- 
tities stated  are  estimated  only  and  given  merely  as  a 
guide  to  the  bidder,  the  government  leaving  itself  free 
to  order  more  or  less  than  the  estimated  quantity.  Bid- 
ders are  required  to  submit  with  their  bids,  in  spite  of 
the  fact  that  the  quantities  are  estimated  only,  certified 
checks,  cash,  or  a  surety  bond  amounting  to  2  per  cent 
of  the  amount  of  their  bids,  using  the  consumption  of 
the  previous  year  as  the  basis  of  computation,  and  if 
award  be  made  to  them  they  must  present  surety 
amounting  to  25  per  cent  of  their  bids.  Bids  are  usu- 
ally opened  early  in  April  and  the  period  between  the 
opening  and  July  i  is  used  in  making  awards,  exe- 
cuting formal  contracts  and  in  preparing  the  schedule 
of  awards.  Very  often  the  awards  on  many  lines  are 
delayed  into  the  ensuing  fiscal  year  on  account  of  the 
impossibility  of  accepting  prices  first  received. 

The  General  Supply  Committee's  schedule  of  awards 
covers  about  25,000  items  representing  upwards  of  $3,- 
000,000  of  expenditures.  The  departments  are  permit- 
ted to  order  from  the  successful  bidders  the  items  listed 
as  they  may  require  them.  The  minimum  quantities 
that  may  be  ordered  on  a  delivery  are  stated  in  some 
instances,  though  in  others  any  quantity,  no  matter  how 
small  or  large,  may  be  ordered.     The  schedules  include 

168 


PURCHASE  AGREEMENTS 

articles  of  common  and  standard  use  by  governmental 
departments,  such,  for  example,  as  stationery  and  gen- 
eral plant  supplies  for  all  departments,  food  supplies 
for  the  Government  Hospital  for  the  Insane  and  for 
Howard  University,  drugs,  chemicals  and  laboratory 
supplies  for  the  scientific  bureaus  and  for  the  Public 
Health  Service,  and  fuel  for  all  departments,  on  all  of 
which  classes  of  items  it  is  possible  to  make  fair  esti- 
mates for  a  fiscal  year,  i.e.,  as  to  which  dealers  with  any 
experience  with  the  departments  of  the  government 
know  that  they  will  surely  require  deliveries  and  in 
fairly  definite  quantities.  The  schedules  also  include 
articles  which  are  definitely  required  by  departments 
but  which  do  not  need  to  be  purchased  recurringly  and 
regularly,  such  as  special  equipment,  typewriters  and 
other  office  appliances.  They  also  include  articles 
which  are  expected  to  be  required  by  one  or  more  de- 
partments but  which  are  not  certain  to  be  required  in 
large  quantities,  such  as  hardware,  tools  and  imple- 
ments, plumbing  supplies  and  materials,  lumber,  etc. 
The  General  Supply  Committee's  schedule  of  awards 
has  in  many  respects  come  to  be  a  catalogue  of  articles 
which  the  departments  think  they  may  need  rather  than 
of  articles  they  know  they  will  need.  The  purpose  of 
securing  prices  on  such  a  schedule  is  that  the  great 
majority  of  the  requirements  of  the  government  may 
be  covered  by  prices  to  which  they  can  definitely  hold 
a  dealer,  thus  relieving  the  departments  of  the  neces- 
sity of  securing  bids  whenever  items  are  needed  and 
securing  in  many  cases  the  advantages  of  consolida- 
tion of  quantities.  A  further  advantage  stated  in  the 
law  establishing  the  General  Supply  Committee  as  one 
of  its  purposes  is  to  facilitate  standardization  and  the 
elimination  of  unnecessary  grades  and  varieties  of  ar- 

169 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tides.     The   latter   result   has   certainly   been   accom- 
plished to  a  large  extent. 

In  a  great  many  cases  most  excellent  prices  have 
been  secured  by  the  General  Supply  Committee  as  a  re- 
sult of  standardization  and  consolidation  of  estimated 
quantities.  It  has  been  stated  that  dealers  often  bid 
low  prices  on  items  on  the  General  Supply  Committee 
schedules  for  the  advertising  advantage  of  being  the 
sole  supplier  of  the  government  in  a  given  field  for  a 
definite  period,  but  the  best  possible  results  have  not 
been  secured  in  cases  where  dealers  have  found  that 
estimated  quantities  have  been  exaggerated  on  the  ad- 
vertised schedules.  In  many  cases,  also,  of  items  as  to 
which  market  conditions  are  unstable  though  the  de- 
partment's requirements  were  known  to  be  fairly  defi- 
nite, it  has  been  impossible  to  secure  good  prices  from 
experienced  dealers.  Obviously  this  is  the  only  pos- 
sible result  from  a  request  to  dealers  to  bid  in  the  win- 
ter and  spring  months  on  requirements  which  the  gov- 
ernment expressly  states  are  estimated  only  and  which 
require  delivery  during  a  period  which  terminates  four- 
teen months  and  more  hence.  The  danger  of  the  spec- 
ulative element  in  bidding  is  further  increased  by  the 
fact  that  awards  in  many  cases  are  not  made  for  more 
than  a  month  after  bids  are  opened,  making  it  impos- 
sible for  a  bidder  to  at  once  cover  a  successful  bid  by 
definitely  securing  a  source  of  supply.  Furthermore, 
dealers  have  found  that  they  have  been  frequently  re- 
quired to  deliver  small  packages  to  outlying  points  so 
frequently  as  to  consume  all  possible  profit.  This  is 
especially  true  of  dealers  outside  of  Washington  who 
have  no  facilities  for  delivery  to  departments  of  the  gov- 
ernment other  than  those  provided  by  freight,  express 
or  parcel  post.     Such  dealers  have  in  the  past  often  bid 

170 


PURCHASE  AGREEMENTS 

with  the  expectation  that  they  would  be  called  upon 
for  deliveries  in  large  quantities,  but  have  found  them- 
selves mistaken  and  very  often  have  dropped  out  of 
competition  or  increased  their  prices. 

It  is  obvious,  and  this  fact  is  well  known  to  the  Gen- 
eral Supply  Committee  and  to  many  others  in  Wash- 
ington, that  the  only  satisfactory  solution  of  the  prob- 
lem is  the  establishment  of  a  permanent  purchasing 
body  probably  kept  in  touch  with  departments  through 
representatives,  but  provided  with  a  permanent  and  ex- 
pert purchasing  staff.  The  existence  of  such  a  per- 
manent force  operating  throughout  the  year  would  en- 
able the  General  Supply  Committee  to  make  the  period  of 
purchase  agreements  accord  with  market  conditions  and 
with  the  changing  requirements  of  the  government,  in- 
stead of  being  uniform  with  few  exceptions  for  a  period 
of  a  fiscal  year,  as  at  present.  It  would  also  enable  the 
committee  to  use  other  methods  of  purchase,  such  as 
contracts  definite  in  every  respect  or  open  market  or- 
der purchases,  when  such  methods  appear  to  be  prefer- 
able to  the  present  method  of  binding  contracts  for 
"requirements."  Many  city,  county  and  state  govern- 
ments have  adopted  the  General  Supply  Committee's 
method  of  purchase.  It  is  required  by  law  in  many 
city  charters;  it  is  required  by  law  also  or  by  adminis- 
trative regulation  for  the  purchases  of  the  departments 
of  education  of  many  cities. 


CHAPTER  XI 

GIVING  PUBLICITY  TO  PURCHASE 
REQUIREMENTS 

Competition  does  not  necessarily  involve  the  widest 
publicity  on  all  purchase  requirements.  It  may  be  suf- 
ficient to  invite  bids  from  four  or  five  dealers  instead 
of  publishing  the  invitation  broadcast.  So  far  as  se- 
curing the  best  priced  article  and  delivery  service  are 
concerned,  competition  is  adequate  if  all  dealers  are 
given  an  opportunity  to  bid,  from  whom  it  is  reason- 
able to  expect  there  is  a  possibility  of  securing  an  ade- 
quate article  to  meet  a  specific  need,  adequate  delivery 
service  and  a  reasonable  price. 

Private  purchasers  do  not,  as  a  rule,  desire  that  the 
widest  publicity  shall  be  given  to  their  purchase  require- 
ments. They  consider  that  every  purpose  is  met  by 
inviting  bids  from  a  selected  list  of  dealers  and,  on  the 
other  hand,  fear  that  to  widely  publish  the  invitation 
for  bids  would  not  only  involve  unnecessary  work  in 
making  an  award  but  would  in  many  instances  invite 
the  formation  of  combinations  or  rings  among  the 
larger  dealers.  They,  therefore,  seek  competition  only 
from  those  known  to  have  suitable  goods  and  adequate 
facilities  for  good  delivery  service.  Private  purchas- 
ers thus  almost  never  employ  public  advertisements  as 
a  means  of  bringing  their  purchase  requirements  to  the 
attention  of  the  trade.  The  selected  lists  of  dealers 
from  whom  competition  is  to  be  sought  on  the  several 
classes  of  articles  are  the  result  of  the  investigations  of 

172 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

the  purchasing  agent  and  his  expert  subordinates. 
They  may  also  be  the  result  of  the  investigations  along 
particular  lines  of  other  executives  of  the  corporation. 
Many  purchases  are  also  made  of  course  as  the  result 
of  solicitation  of  salesmen  without  seeking  competition. 

Among  governments  the  securing  of  competition  on 
purchase  requirements  is  only  one  reason  for  the  wide 
publicity  that  is  often  given  thereto.  The  chief  rea- 
son for  the  requirement  of  wide  publicity,  especially  on 
important  purchases,  is  protection  against  the  suspicion 
of  graft  or  favoritism.  The  publicity  of  purchase  re- 
quirements makes  it  impossible  for  dealers  to  complain 
that  due  notice  of  purchase  requirements  was  not  given 
and  adequate  competition  sought.  It  seems  apparent, 
however,  that  due  consideration  is  not  given  by  law- 
makers and  government  executives  to  the  fact  that  in 
spite  of  the  widest  publicity  of  purchase  requirements 
competition  may  be  restricted  by  narrow  specifications, 
unsatisfactory  forms  of  purchase  agreements  or  unde- 
sirable delivery  conditions;  graft  and  favoritism  may 
be  accomplished  by  these  means  in  spite  of  the  fullest 
publicity  of  purchase  requirements. 

Publicity  of  all  transactions  of  the  purchasing  office 
is,  however,  the  only  alternative  to  narrow  restrictions 
on  the  authority  of  the  purchasing  agent.  For  gov- 
ernments it  is,  therefore,  necessary  to  devise  a  method 
of  securing  publicity  of  purchase  requirements  which 
will  give  the  widest  possible  publicity  to  purchase  re- 
quirements and  furnish  an  equal  opportunity  to  all  to 
find  precisely  what  these  requirements  are,  and  will 
moreover  bring  purchase  requirements  to  the  attention 
of  all  desirable  dealers  in  a  forceful  manner.  The 
methods  which  are  currently  used  for  this  purpose  are 

173 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

formal  advertisement,  the  use  of  a  bulletin  board  and 
direct  notification  to  dealers. 

Formal  Advertisements.  Formal  advertisements  on  im- 
portant purchase  requirements  are  the  rule  among 
American  municipalities.  They  are  required  by  the 
charters  of  a  great  majority  of  American  cities.  Thus, 
in  New  York  City  public  advertisement  for  ten  days, 
exclusive  of  Sundays  and  holidays,  is  required  on  all 
purchases  amounting  to  more  than  $i,000,  this  adver- 
tisement to  be  in  the  official  paper  and  also  in  five  papers 
of  the  borough  of  Brooklyn  if  the  purchase  concerns 
this  borough  exclusively.  In  the  case  of  many  cities 
formal  public  advertisement  is  required  on  purchases 
of  over  $250  in  amount.  Five  hundred  dollars  is  per- 
haps the  most  common  figure  above  which  formal  pub- 
lic advertisement  is  required.  In  the  case  of  many  cit- 
ies estimated  purchase  requirements  must  be  scheduled 
at  the  beginning  of  a  fiscal  period  and  the  schedule 
brought  to  the  attention  of  dealers  by  means  of  formal 
public  advertisement.  The  reason  for  this  method  is 
of  course  that  full  publicity  may  be  given  to  all  im- 
portant purchase  requirements — at  least  full  theoretical 
publicity. 

Formal  public  advertisements  of  important  purchases 
in  the  majority  of  cases  merely  state  the  requirements 
in  the  broadest  terms,  with  the  additional  information 
as  to  where  details  may  be  secured  and  when  and  where 
bids  will  be  opened.  In  a  few  cities,  however, — for  ex- 
ample, St.  Louis — the  form  of  public  advertisement  in- 
cludes complete  details  with  the  exception  of  specifica- 
tions. 

As  a  means  of  securing  full  publicity  of  purchase  re- 
quirements and  equal  opportunity  to  all  to  determine 

174 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

what  these  requirements  are,  formal  public  advertise- 
ments are  largely  a  failure.  They  are  not  widely  read, 
particularly  when  they  are  published  in  official  papers. 
Agencies  exist  for  the  purpose  of  clipping  formal  ad- 
vertisements and  furnishing  clippings  to  their  sub- 
scribers, but  if  dealers  do  not  subscribe  to  such  a  serv- 
ice and  do  not  have  access  to  the  particular  paper  in 
which  the  advertisement  appears,  it  is  likely  to  escape 
their  notice.  If  they  do  take  the  paper,  they  are  also 
apt  to  miss  the  advertisement.  Formal  public  adver- 
tisements fail  also  in  their  incompleteness  of  detail,  stat- 
ing, as  a  rule,  merely  the  class  on  which  competition  is 
desired,  and  the  names  of  the  classes  often  being  far 
from  definitive  of  what  is  included. 

Equally  defective  are  the  great  majority  of  formal 
advertisements  as  a  means  of  bringing  purchase  re- 
quirements to  the  attention  of  dealers  in  a  forceful  man- 
ner. Nothing  could  be  less  forceful  than  the  usual  for- 
mal advertisement.  This  is  true  by  reason  of  their  gen- 
eral nature  and  lack  of  definition  and  also  by  reason  of 
the  fact  that  they  do  not,  as  a  rule,  come  directly  to  the 
attention  of  the  right  people. 

In  furnishing  to  all  an  equal  opportunity  to  bid  on 
equal  terms  upon  purchase  requirements,  formal  pub- 
lic advertisements  do,  however,  generally  succeed.  The 
period  of  advertisement  is  usually  not  less  than  one  week 
and  is  often  not  less  than  ten  days.  Therefore,  no 
dealer  who  sees  the  advertisement  in  time,  as  he  theo- 
retically is  supposed  to  do,  could  say  that  he  did  not 
have  an  equal  opportunity  with  every  other  dealer  to 
locate  a  source  of  supply  and  to  figure  his  bid. 

Formal  public  advertisements  of  governmental  pur- 
chase requirements  are  undoubtedly  very  expensive. 
This  is  especially  so  when  advertisement  is  required  in 

175 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

several  papers,  as  is  the  case  in  New  York  City  when 
contracts  are  to  be  entered  into  which  concern  the  bor- 
ough of  Brooklyn  alone,  the  yearly  cost  of  these  Brook- 
lyn advertisements  (including  construction  as  well  as 
purchases)  mounting  to  well  over  $100,000. 

There  appears  to  be  a  tendency  among  governments 
to  adopt  formal  advertisements  of  large  purchase  re- 
quirements as  a  normal  practice  but  to  provide  for  dis- 
pensing with  the  requirement  in  emergencies  or  when 
public  advertisement  can  bring  no  beneficial  results. 
Thus,  in  the  case  of  St.  Paul  the  charter  requires  for- 
mal advertisement  in  the  official  paper  of  all  purchases 
of  more  than  $500  in  amount,  but  states  that  "in  case 
of  an  emergency  where  failure  to  act  promptly  will  work 
an  injury  to  the  city,  the  purchasing  agent,  with  the 
written  consent  of  the  comptroller  and  the  mayor  and 
the  consent  of  the  council,  may  purchase  supplies  to  any 
amount  without  advertisement  and  competitive  bids." 
The  charter  of  Minneapolis  requires  formal  advertise- 
ment on  purchases  of  over  $1,000  "which  may  be  con- 
veniently made  at  one  time,"  but  provides  that  in  the 
case  of  articles  likely  to  vary  in  price  during  short  peri- 
ods, or  for  any  other  good  and  sufficient  reason,  competi- 
tive bids  may  be  sought  and  received  without  public  ad- 
vertisement in  the  purchasing  agent's  discretion.  In 
many  cities,  however,  formal  advertisement  of  pur- 
chases may  be  dispensed  with  only  upon  authorization 
very  difficult  to  secure  by  reason  of  cumbersome  pro- 
cedure,— in  New  York  City,  for  example,  upon  a  three- 
fourths  vote  of  the  board  of  aldermen. 

The  need  of  formal  public  advertisements  as  a  means 
for  securing  publicity  of  all  purchase  requirements  is 
plainly  much  greater  when  the  purchases  of  a  govern- 
ment are  made  through  several  offices  than  when  they 

176 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

are  made  through  a  central  purchasing  department  or 
agency.  When  such  a  central  agency  exists  dealers  are 
provided  with  a  ready  source  of  information  on  all  pur- 
chase requirements  and  can  blame  no  one  but  themselves 
if  they  do  not  know  what  these  requirements  are  and 
when,  where  and  how  they  may  bid  upon  them. 

Bulletin  Board  Publicity.  Many  governmental  purchas- 
ing offices  provide  themselves  with  bulletin  boards  on 
which  are  posted  all  purchase  requirements.  This  plan 
is  followed  by  the  purchasing  offices  of  the  Navy  De- 
partment, the  bulletin  boards  in  such  cases  being  merely, 
however,  lists  of  purchase  requirements,  dealers  being 
required  to  make  application  to  the  office  for  details. 
This  form  of  bulletin  board  publicity  is  perhaps  the  most 
common  type. 

The  city  of  Cleveland  adopts  the  practice  of  posting 
all  its  purchase  requirements  on  bulletin  boards  in  the 
form  of  detailed,  itemized  requisitions  classified  so  as 
to  facilitate  inspection  by  representatives  of  possible 
bidders.  Thus,  at  any  time  a  representative  of  a  gro- 
cery house  coming  into  the  purchasing  department  is 
able  to  turn  to  a  pile  of  purchase  requisitions  under  the 
heading  "groceries"  and  find  precisely  what  articles  are 
required  and  when  bids  must  be  submitted.  He  may 
then  call  for  a  bid  blank  and  may  make  out  his  bid  on 
the  spot  or  may  copy  the  items  in  which  he  is  inter- 
ested and  take  the  data  back  to  his  office  for  consid- 
eration. All  purchase  requirements  are  posted  for  not 
less  than  forty-eight  hours,  except  in  an  emergency. 

In  Cincinnati  bulletin  board  publicity  of  purchase  re- 
quirements in  the  purchasing  department  has  been  car- 
ried to  a  further  point  than  in  Cleveland.  Here  a  sched- 
ule is  prepared  which  states  what  classes  of  items  will 

177 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

be  bid  upon  each  business  day  of  the  week.  Thus, 
groceries,  meats  and  other  food  supplies  for  all  city 
departments  are  bid  upon  on  Monday;  forage,  coal, 
brick,  cement,  lubricants,  auto  supplies,  lumber,  paint- 
ers' supplies,  etc.,  are  bid  upon  on  Tuesday;  drugs  and 
chemicals,  hospital  supplies,  electrical  supplies  and  gas 
appliances  are  bid  upon  on  Thursday.  Dealers  are,  there- 
fore, able  by  sending  their  representatives  to  the  pur- 
chasing department  forty-eight  hours  or  more  in  ad- 
vance of  the  day  on  which  bids  on  a  certain  class  are 
to  be  submitted  to  learn  what  items  they  will  have  a 
chance  to  bid  upon.  Purchase  requisitions  from  depart- 
ments are  posted  as  soon  as  received,  even  though  they 
may  arrive  in  the  purchasing  department  more  than 
forty-eight  hours  prior  to  the  opening  of  bids.  Requisi- 
tions received  later  than  forty-eight  hours  prior  to  the 
opening  are  held  over  to  the  following  week.  This 
method  is  considered  a  most  important  part  of  the  pur- 
chasing system  of  the  city  of  Cincinnati.  It  has  been 
adopted  also  by  Baltimore  with  considerable  success. 

At  least  so  far  as  respects  local  dealers  the  bulletin 
board  method  is  probably  in  most  cases  as  successful 
as  formal  advertisements  in  giving  full  publicity  to  pur- 
chase requirements.  This  is  particularly  true  under  the 
methods  of  Cleveland,  Cincinnati  and  Baltimore.  Many 
dealers  regularly  send  their  representatives  to  inspect 
the  bulletin  boards  of  these  cities.  This  is  also  the  case 
with  respect  to  the  Navy  Department,  even  though  that 
department  does  not  undertake  to  systematize  the  items 
listed.  In  all  these  cases  it  may  be  said  that  not  only 
has  full  theoretical  publicity  among  local  dealers  been 
obtained,  but  also  a  large  degree  of  real  publicity  by  the 
bulletin  board  method. 

As  a  means  of  giving  publicity  to  purchase  require- 

178 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

ments  to  other  than  local  dealers,  the  bulletin  board 
method  is  obviously  defective.  But  it  is  doubtful 
whether  it  is  any  more  so  than  is  the  formal  advertise- 
ment in  an  official  paper  or  even  in  a  newspaper. 

As  a  means  of  bringing  purchase  requirements  to  the 
attention  of  dealers  in  a  forceful  manner,  the  bulletin 
board  methods  of  Cleveland  and  Cincinnati  are  un- 
doubtedly successful  in  the  case  of  standard  supplies, 
materials  and  equipment  to  the  extent  to  which  dealers 
are  interested  in  sending  representatives  to  inspect  the 
bulletin  boards.  But  with  respect  to  special  and  un- 
usual items  it  cannot  be  said  that  the  bulletin  board 
method  is  a  success  in  stimulating  competition.  It  is 
admitted,  also,  in  these  cities  which  depend  largely  upon 
the  bulletin  board  method  of  publicity  that  in  the  case 
of  common  standard  supplies  for  every-day  use  com- 
petition must  be  stimulated  among  many  of  the  most 
desirable  dealers  by  other  means.  It  is  a  fact  that  many 
large  dealers  in  a  position  to  offer  a  favorable  price  are 
not  particularly  interested  in  government  business. 
There  are  many  reasons  for  this,  among  them  the  red 
tape  and  technicalities  involved  in  bidding  on  govern- 
ment supplies,  the  frequent  necessity  of  precisely  meet- 
ing a  narrow  government  specification  and,  in  many  in- 
stances, delayed  payment.  The  purchasing  agent  must, 
therefore,  seek  other  means  than  formal  advertisement 
or  the  bulletin  board  method  to  bring  in  all  desirable 
competition. 

In  respect  to  giving  a  fair  and  equal  opportunity  to 
all  to  bid  on  purchase  requirements,  the  bulletin  board 
methods  of  Cleveland  and  Cincinnati  and  of  many  other 
cities  serve  satisfactorily  so  far  as  local  dealers  are 
concerned.     Forty-eight  hours  posting  is  sufficient  in 

179 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

most  cases  to  give  all  dealers  an  opportunity  to  locate 
a  source  of  supply  and  figure  their  prices. 

There  can  be  no  doubt  about  the  advantage  of  the 
bulletin  board  method  in  giving  publicity  to  government 
purchase  requirements,  and  since  publicity  of  all  busi- 
ness transactions  is  apparently  the  only  alternative  to 
limiting  the  exercise  of  discretion  by  public  officials,  it 
is  certainly  to  be  favored.  The  bulletin  board  method 
is  commendable  for  governmental  purchases  no  matter 
what  the  method  of  purchase  may  be — whether  by  con- 
tracts for  definite  quantities,  by  price  agreements  or 
understandings.  Even  emergency  purchases  made  with- 
out resort  to  any  but  very  limited  competition  may  be 
posted  to  advantage  on  the  bulletin  board  and  marked 
"emergency."  When  central  purchasing  departments 
exist  the  bulletin  board  method  is  especially  advantage- 
ous as  a  means  for  securing  wide  publicity  and  also  for 
actually  stimulating  competition. 

Direct  Notification  to  Dealers.  Direct  notification  to 
dealers  by  mail,  by  telephone  or  by  personal  interview 
is  essential  in  probably  the  majority  of  cases  to  supple- 
ment formal  advertisements  of  purchase  requirements 
and  bulletin  board  publicity.  Such  direct  notification  is 
in  the  form  of  a  simple  notice  that  certain  purchases  are 
to  be  made  or  contracts  entered  into,  or  in  the  form  of 
a  detailed  invitation  for  bids. 

With  respect  to  securing  full  publicity  on  purchase 
requirements,  not  even  the  principle  of  full  publicity 
is  met  by  sending  notifications  to  a  limited  list  of  se- 
lected dealers.  In  order  to  secure  full  publicity,  notifi- 
cation on  each  class  of  purchases  must  be  sent  to  all 
dealers  who  desire  to  be  notified.  Provided  the  exist- 
ence of  such  lists  of  dealers  is  made  universally  known 

i8o 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

and  equal  opportunity  is  afforded  to  all  dealers  to  have 
their  names  placed  thereon,  the  principle  of  full  pub- 
licity is  completely  met  if  postal  card  notices  or  detailed 
invitations  to  bid  are  mailed  to  every  firm  or  person 
listed.  But  this  would  obviously  be  very  expensive  were 
general  use  made  of  this  method  on  all  purchases,  large 
or  small.  Governments  are  very  apt  to  undertake  to 
give  the  widest  possible  publicity  to  purchase  require- 
ments, large  or  small,  and  many  purchasing  offices  of 
private  companies  likewise  undertake  to  seek  rather  wide 
competition  on  recurring  purchase  needs. 

The  method  employed  by  the  London  County  Council 
of  advertising  for  those  who  desire  to  be  placed  upon 
lists  of  prospective  bidders  in  specific  lines  of  supplies^ 
materials  or  equipment,  and  of  eliminating  from  these 
lists  dealers  known  to  be  operating  under  unsatisfactory 
labor  conditions  or  paying  inadequate  wages,  has  the 
advantage  of  furnishing,  theoretically,  complete  lists  of 
dealers  to  whom  notices  must  be  sent. 

With  respect  to  bringing  requirements  to  the  atten- 
tion of  dealers  in  a  forceful  manner,  direct  notifications 
are  successful  only  when  they  are  sufficiently  detailed 
to  give  an  adequate  idea  of  the  precise  purchase  re- 
quirements. Notification  that  certain  miscellaneous  sup- 
plies are  to  be  purchased  is  not,  for  example,  likely  to 
appeal  strongly  to  a  manufacturer  or  a  wholesaler  of  a 
particular  item.  The  more  direct  the  appeal  also  the 
more  likelihood  of  success  in  stimulating  interest  among 
the  right  persons.  It  is,  therefore,  found  by  many  pur- 
chasers highly  desirable  to  send  a  notice  of  purchase  re- 
quirements or  invitation  to  bid  to  an  individual  member 
of  a  firm  or  to  a  salesman  or  a  representative  rather 
than  to  the  firm.  Many  firms  in  fact  request  that  all 
notifications  be  sent  direct  to  an  individual  in  order  that 

i8i 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

they  may  be  sure  of  the  personal  attention  of  the  right 
man. 

Examples  have  been  given  in  a  previous  chapter  of 
forms  of  dealers'  lists.  Their  successful  use  in  giving 
full  publicity  to  purchase  requirements  depends  upon 
their  proper  classification  and  upon  their  being  kept  up 
to  date.  With  respect  to  the  latter  it  is  important  both 
to  add  all  possible  sources  of  desirable  competition  and 
to  eliminate  firms  or  individuals  from  whom  no  bids  are 
received.  It  is  probably  better,  however,  in  the  case  of 
governments,  to  give  notice  to  dealers  before  eliminat- 
ing their  names  from  the  list.  These  lists  are  classified 
according  to  trades.  A  dealer's  name  may  be  placed  in 
as  many  classes  as  he  desires.  The  plan  adopted  by  the 
central  purchasing  committee  of  New  York  City  is  to 
place  at  the  beginning  of  each  class  the  names  of  firms  or 
individuals  who  wish  to  be  notified  whenever  invitations 
for  bids  are  to  be  sought  upon  a  schedule  involving  an 
entire  class  or  an  important  purchase  to  be  made  of  any 
single  item  in  the  class.  Thus,  in  the  general  class 
^'groceries"  there  appear  at  the  beginning  of  the  class, 
cards  containing  the  names  of  wholesale  houses  and 
other  firms  who  wish  to  be  notified  of  any  schedule  or 
important  purchase  in  the  class.  Under  the  subclass, 
for  example,  canned  goods,  cereals,  sugar,  etc.,  appear 
the  names  of  dealers  who  wish  to  be  notified  only  when 
important  purchases  are  to  be  rt^ade  under  such  a  sub- 
class. 

Geographical  Extent  of  Competition.  There  is  a  ten- 
dency among  many  dealers  and  even  among  many  pur- 
chasers, especially  governments,  to  consider  that  com- 
petition should  be  limited  to  local  dealers  on  all  articles 
which  the  local  market  can  supply.    Local  dealers  argue 

182 


GIVING  PUBLICITY  TO  PURCHASE  REQUIREMENTS 

that  being  taxpayers  and  helping  to  support  the  local 
government  they  should,  therefore,  be  given  preference 
in  its  purchases.  The  invalidity  of  this  contention  from 
the  standpoint  of  efficiency  in  city  business  needs  no 
pointing  out. 

Where  local  competition  only  is  sought  and  dealers 
know  this,  some  of  them  are  pretty  sure  to  charge  high 
prices  and  even  to  form  combinations  or  rings  in  the 
case  of  certain  classes  of  supplies.  The  only  successful 
way  to  combat  this  is  by  seeking  outside  competition 
wherever  possible.  To  this  end  invitations  for  bids  must 
be  put  up  in  form  attractive  to  outside  dealers  and  man- 
ufacturers, and  in  a  form  complete  in  itself,  as  has  pre- 
viously been  stated,  in  order  that  valuable  time  may  not 
be  lost  by  reason  of  the  necessity  of  furnishing  addi- 
tional information.  Thus,  in  purchasing  lumber  New 
York  City  finds  it  to  advantage  to  furnish  invitations  for 
bids  so  complete  as  to  enable  a  Buffalo  or  Philadelphia 
dealer  to  bid  if  he  so  chooses  without  need  of  request- 
ing further  information.  On  certain  classes  of  timber 
it  is  necessary  to  furnish  information  to  firms  as  far 
north  as  Maine  and  as  far  south  as  Georgia.  All  cities 
are  not  located  as  advantageously  as  are  Minneapolis 
and  St.  Paul  in  this  respect;  the  purchasing  agent  of  the 
city  of  Minneapolis  is  able  to  hold  Minneapolis  dealers 
to  suitable  terms  by  seeking  competition  in  St.  Paul,  and 
vice  versa. 

There  is  now  observable  a  growing  tendency  among 
municipal  purchasing  agents  and  among  purchasing 
agents  of  all  governments  to  widen  competition  and  to 
seek  it  as  far  afield  as  there  is  any  likelihood  of  advan- 
tage therefrom.  This  is  a  most  important  weapon  in  the 
hands  of  a  purchasing  agent  in  attempting  to  break  local 
combinations  or  rings.    By  reason  of  the  fact  that  he  is 

183 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

a  governmental  purchasing  agent  he  is  precluded  from 
entering  into  secret  understandings  used  by  the  pur- 
chasing agents  of  private  corporations  to  accomplish  the 
same  end. 


CHAPTER  XII 
PURCHASE  NEGOTIATIONS  AND  AWARDS 

In  perhaps  no  phase  of  purchasing  is  the  disparity 
between  commercial  and  governmental  practice  wider 
than  in  connection  with  purchase  negotiations  and 
awards.  As  opposed  to  the  obscurity,  not  to  say  se- 
crecy, in  which  important  purchase  transactions  are 
commonly  shrouded  in  commercial  practice,  govern- 
mental regulations  usually  enforce  in  the  case  of  such 
transactions  the  fullest  publicity.  In  the  place  of  the 
almost  unlimited  discretion  in  choosing  among  vendors 
which  is  generally  vested  in  commercial  purchasing 
agents,  the  government  purchasing  agent  is  almost  in- 
variably subjected  to  rigid  limitations  upon  the  free- 
dom of  his  choice — limitations  frequently  so  rigid  in- 
deed as  to  leave  him  no  choice  at  all. 

The  difference  is  generally  accepted  as  necessary  and 
proper,  on  the  ground  that  the  publicity  and  restrictions 
found  in  government  purchasing  are  indispensable  if 
graft  and  favoritism  are  to  be  prevented.  It  must  be 
borne  in  mind,  however,  that  private  purchasing  too, 
especially  when  conducted  on  a  large  scale,  offers  many 
opportunities  for  graft  and  favoritism;  and  this  is 
clearly  recognized  by  large  corporations.  The  danger 
is  believed  by  them,  however,  to  be  adequately  met 
through  the  exercise  of  the  highest  care  in  selecting  the 
purchasing  personnel,  and  by  subjecting  all  purchase 
transactions  to  a  careful  independent  audit. 

With  this  difference  in  the  basic  theory  of  adminis- 

185 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tration  in  mind,  it  will  be  of  value  to  examine  the  prac- 
tice of  commercial  organizations  and  governments  with 
respect  to  the  publicity  accorded  purchase  negotiations, 
and  the  procedure  followed  in  making  awards. 

Publicity  of  Purchase  Negotiations.  As  already  indi- 
cated, the  legal  formalities  generally  required  in  govern- 
ment purchasing,  in  connection  with  the  submission  of 
bids  and  their  consideration,  result  in  giving  the  fullest 
publicity  to  the  prices  and  other  terms  offered  by  each 
bidder.  To  insure  that  such  publicity  is  had  is  indeed 
the  principal  purpose  of  many  of  these  legal  restrictions. 
The  procedure  developed  in  New  York  City,  though  car- 
ried farther  than  is  perhaps  common  in  American  cities, 
is  illustrative  of  the  formalities  prescribed  to  insure  pub- 
licity of  bids  in  government  purchasing.  By  the  charter 
of  the  city  formal  advertisement  for  a  period  of  ten  days 
is  required  on  all  purchases  over  $i,ooo  in  amount.  This 
formal  advertisement  must  announce  the  hour  and  place 
of  opening  bids,  and  notice  of  these  details  must  also  be 
given  to  the  finance  department.  (This  notice  is  for 
the  purpose  of  complying  with  the  requirement  of  the 
charter  that  bids  be  opened  in  the  presence  of  the  comp- 
troller or  his  representative — a  requirement  which  is 
modified,  however,  by  the  statement  that  if  the  finance 
department  is  not  represented  at  the  opening  it  need  not 
be  postponed.)  Sealed  bids  are  received  in  duplicate 
from  each  bidder,  together  with  a  security  deposit  of 
1 5^  per  cent  of  the  total  amount  involved.  The  security 
deposit  is  receipted  for  and  later  turned  over  to  the 
finance  department  for  keeping.  The  bids  are  placed  in 
locked  boxes,  one  copy  going  into  a  box  reserved  for 
the  finance  department.     The  finance  department,  in 

i86 


PURCHASE  NEGOTIATIONS  AND  AWARDS 

short,  maintains  an  independent  check  upon  all  matters 
pertaining  to  the  award. 

Bids  are  opened  by  the  head  of  the  department  con- 
cerned, who  reads  aloud  the  name  of  each  bidder,  the 
total  amount  of  his  bid  and  the  total  amount  of  his  se- 
curity deposit.  Thereupon  the  department  head  may 
leave  if  he  chooses  and  the  detailed  prices  against  each 
item  in  each  bid  are  read  out  to  the  assembled  bidders 
and  the  prices  are  tabulated.  The  tabulation  is  then 
open  to  public  inspection. 

This  procedure  is  required  by  charter  provisions  only 
in  case  of  purchases  above  $i,ooo  in  amount;  but  in  or- 
der to  give  full  publicity  to  purchase  transactions  of 
less  amount  even  bids  submitted  in  response  to  informal 
invitation  are  often  opened  in  public  at  a  stated  hour 
and  place.  The  city  of  St.  Paul  requires,  however,  the 
same  formal  procedure  on  so-called  informal  contracts 
involving  purchases  of  $ioo  to  $500  that  it  does  upon 
contracts  over  $500  in  amount.  The  only  difference  be- 
tween these  two  contracts  is  that  those  over  $500  re- 
quire formal  advertisement. 

That  full  publicity  of  all  purchase  negotiations  and 
bids  has  substantial  advantages  for  government  pur- 
chasing is  not  to  be  doubted.  The  assurance  which  it 
gives  to  bidders  that  all  are  bidding  on  an  equal  basis 
tends  to  stimulate  competition ;  and  the  assurance  given 
to  the  public  and  to  the  higher  executives  and  financial 
officers  of  the  government  that  purchasing  is  being  con- 
ducted honestly  has  a  value  not  to  be  estimated  in  mone- 
tary terms  alone.  Looked  at  purely  as  a  business  prac- 
tice, however,  the  giving  of  full  publicity  to  purchase 
negotiations  is  open  to  serious  objection.  It  frequently 
results  in  the  loss  of  the  competition  of  manufacturers, 
many  of  whpm  do  not  care  to  have  it  known  that  they 

187 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

are  bidding  in  direct  competition  with  their  customers 
— the  middlemen.  It  often  results  in  higher  prices  due 
to  the  fact  that  dealers  do  not  care  to  quote  low  prices 
which  they  know  will  be  exposed  to  public  inspection. 
This  is  especially  the  case  when  they  may  have  reason 
to  fear  that  bids  will  be  rejected  for  technicalities  and 
the  invitation  readvertised,  giving  their  competitors  an 
opportunity  to  use  their  knowledge  of  prices  bid  to  un- 
derbid them  on  the  reopening.  It  is  beyond  question  a 
fact  that  rock  bottom  prices  are  seldom  secured  when 
prices  bid  are  exposed  to  the  general  public. 

The  practice  of  commercial  purchasers  in  this  respect 
is  illuminating.  By  them  it  is  thought  to  be  the  poorest 
of  policies  to  expose  generally  the  prices  of  competing 
firms  or  to  use  the  price  of  one  firm  on  a  given  article 
to  secure  a  lower  price  from  another  firm.  Secrecy  of 
prices  is  known  to  be  necessary  in  order  to  secure  the 
lowest  possible  prices  in  many  instances.  For  this  rea- 
son knowledge  of  prices  paid  is  often  confined  to  the 
purchasing  and  accounting  departments  and  carefully 
guarded,  at  least  so  far  as  concerns  the  purchaser's 
own  documents,  from  all  of  the  other  departments.  It 
is,  therefore,  to  be  questioned  whether,  in  making  pub- 
lic the  prices,  governments  do  not  go  one  step  too  far  in 
their  desire  to  give  bid  publicity  to  purchase  transac- 
tions. Comparison. of  prices  by  the  proper  executive 
officers  and  subjection  of  the  transactions  of  the  pur- 
chasing office  to  an  independent  audit  would  appear  to 
be  sufficient  protection  against  graft. 

Discretion  in  the  Making  of  Awards.  In  commercial 
practice  the  purchasing  agent  is  generally  vested  with 
complete  freedom  of  choice  in  making  awards.  Seldom 
is  any  procedure  provided  even  for  securing  the  ap- 

i88 


PURCHASE  NEGOTIATIONS  AND  AWARDS 

proval  of  higher  executives  in  the  award.  Bids  are  some- 
times brought  informally  to  the  attention  of  executives, 
whose  acquiescence  is  necessary  to  insure  that  the  right 
article  and  the  best  possible  delivery  service  are  fur- 
nished; and  the  purchasing  agent  as  a  member  of  the 
executive  committee  of  a  corporation  often  brings  be- 
fore it  important  questions  involved  in  awards.  But 
the  greater  part  of  the  awards  on  the  purchases  of  a 
private  corporation  are  made  without  the  submission  of 
questions  to  the  executive  committee  or  to  individual 
executives.  The  contrast  to  this  condition  furnished  by 
governmental  practice  need  not  here  be  dwelt  upon,  as 
it  has  already  been  discussed  at  length  in  a  preceding 
chapter.^  It  will  be  of  value  to  consider  here,  however, 
the  formalities  usually  attendant  upon  the  making  of 
awards  and  the  execution  of  contracts  in  governmental 
purchasing. 

Formalities  in  Making  Awards  and  Executing^  Contracts. 

An  illustration  of  a  high  degree  of  formality  in  this  re- 
spect is  furnished  by  the  procedure  followed  by  New 
York  City,  to  which  reference  has  already  been  made. 
After  the  several  bids  received  have  been  tabulated  and, 
if  necessary,  analyzed,  they  are  carefully  checked  in  or- 
der to  insure  that  all  formalities  have  been  complied 
with  and  that  no  bids  are  considered  from  dealers  who 
are  defaulters  to  the  city  on  debt  or  on  a  contract. 
Thereupon,  after  eliminating  all  informal  bids  and  all 
bids  from  defaulters,  the  purchasing  agent  and  those 
whom  he  consults  have  the  single  alternative  either  of 
making  award  to  the  lowest  bidder  or  of  rejecting  all 
bids.  If  the  award  is  made  to  the  lowest  bidder,  an 
advice  of  award  is  given  to  the  finance  department  show- 

^  See  Chapter  III. 

189 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ing  the  specific  items  on  which  the  award  is  made,  the 
name  of  the  successful  bidder  and  the  precise  effect 
which  the  award  will  have  upon  appropriations.  This 
advice  of  award  must  be  signed  by  the  head  of  the  de- 
partment. The  following  steps  are  then  taken  by  the 
several  departments  concerned: 

1.  A  notice  of  award  is  sent  to  the  successful  bidder 
advising  him  to  submit  his  sureties  to  the  finance 
department  for  approval. 

2.  Three  copies  of  a  formal  contract  are  prepared 
for  execution  by  the  successful  bidder  and  by  his 
sureties. 

3.  Notification  is  given  by  the  finance  department  to 
the  contracting  department  that  the  bidder's  sure- 
ties have  been  approved. 

4.  Notice  is  given  by  the  purchasing  office  to  the  suc- 
cessful bidder  that  the  contract  is  ready  for  exe- 
cution. 

5.  The  contracts  are  returned  from  the  contractor, 
executed  by  him  with  properly  executed  bonds. 
This  return  is  required  by  charter  to  be  within 
five  days  of  notice  to  him  that  the  contracts  are 
ready  for  execution.  Contracts  must  be  acknowl- 
edged before  a  notary  or  a  commissioner  of  deeds. 

6.  The  contract  is  submitted  to  the  head  of  the  de- 
partment for  execution.  The  signature  of  the  head 
of  the  department  must  also  be  acknowledged  be- 
fore a  notary  or  a  commissioner  of  deeds. 

7.  The  three  copies  of  the  contract  are  submitted  to 
the  law  department  for  its  certificate  of  legality 
of  execution. 

8.  The  contracts  are  submitted  to  the  finance  depart- 

190 


PURCHASE  NEGOTIATIONS  AND  AWARDS 

ment  for  final  certification  of  availability  of  funds 
in  the  proper  appropriation. 
9.  A  copy  of  the  contract  is  sent  to  the  contractor,  one 
being  retained  in  the  finance  department  and  one 
kept  by  the  department  making  the  contract. 

In  addition  to  this  procedure,  a  formal  procedure  is 
requisite  in  connection  with  the  return  to  bidders  of  the 
security  deposits  which,  as  already  seen,  are  required  to 
be  submitted  with  each  bid.  The  charter  requires  that 
all  security  deposits  except  those  of  the  three  lowest  bid- 
ders shall  be  returned  within  ten  days  of  the  opening  of 
bids,  and  that  within  three  days  after  the  notice  of 
award  has  been  sent  to  the  successful  bidder  all  security 
deposits  shall  be  returned  except  that  of  the  latter.  It 
was  accordingly  formerly  the  practice  for  the  finance 
department  to  return  all  security  deposits  except  those 
of  the  lowest  bidder  upon  notice  from  the  department 
that  the  contract  was  ready  for  execution,  the  deposit 
of  the  lowest  bidder  being  retained  until  after  the  exe- 
cution of  the  contract.  The  finance  department  now, 
as  a  rule,  eliminates  one  step  by  returning  all  security 
deposits  at  one  time  upon  notice  from  the  purchasing 
office  that  the  contract  has  been  taken  for  execution  by 
the  contractor. 


CHAPTER  XIII 
FOLLOW-UP 

Any  purchaser  knows  that  even  in  transactions  with 
the  most  reliable  firms  pressure  is  often  necessary  in 
order  to  secure  correct  and  timely  deliveries  in  accord- 
ance with  the  terms  of  a  purchase  agreement.  The  per- 
sistent follow-up  of  orders  to  insure  prompt  delivery 
has,  moreover,  a  value  quite  apart  from  its  utility  in 
securing  a  steady  and  regular  flow  of  materials  and  sup- 
plies. It  enhances  the  trade  reputation  of  the  pur- 
chaser, giving  emphasis  to  the  belief  that  he  wants  what 
he  has  called  for  in  his  specifications  and  intends  to  get 
it.  Particularly  in  government  purchasing  it  gives  as- 
surance to  bidders  that  all  are  bidding  on  equal  terms 
and  that  the  successful  bidder  has  had  no  secret  infor- 
mation of  concessions  which  will  be  granted  him  in  de- 
liveries. 

Generally  speaking,  follow-up  is  of  less  vital  impor- 
tance in  government  purchasing  than  in  business  pur- 
chasing. Particularly  in  large  and  intricate  manufac- 
turing industries,  where  the  proper  timing  of  deliveries 
of  the  raw  materials  presents  so  involved  a  problem,  has 
the  procedure  of  follow-up  been  highly  developed.  It 
will  be  of  value,  therefore,  to  examine  the  methods  em- 
ployed by  representative  industrial  organizations  in  fol- 
lowing-up deliveries  for  the  light  which  may  be  thrown 
upon  the  relatively  simple  problems  of  follow-up  gen- 
erally encountered  in  government  purchasing. 

In  most  modern  industrial  corporations  follow-up  has 

192 


FOLLOW-UP 

the  two-fold  purpose  of  insuring  not  merely  timely  de- 
liveries, but  conformance  of  deliveries  with  the  require- 
ments of  the  business,  that  is,  the  maintenance  of  stocks 
at  a  level  which  while  adequate  for  all  operating  pur- 
poses will  involve  a  minimum  investment.  This  latter 
function  is  generally  entrusted  primarily  to  the  produc- 
tion department,  but  the  follow-up  department  often 
serves  both  as  a  check  upon  the  production  department 
in  this  respect  and  as  the  agent  of  the  production  de- 
partment in  furnishing  information  to  sources  of  supply 
as  to  precisely  when  and  in  what  quantities  deliveries 
are  required. 

Organization  for  Folio w-Up.  The  organization  of  private 
companies  for  following  up  deliveries  on  purchase  or- 
ders or  agreements  varies  greatly.  In  normal  times 
many  companies  found  it  sufficient  to  entrust  the  work 
of  following  up  deliveries  to  a  small  division  consisting 
of  two  or  three  individuals  in  the  purchasing  depart- 
ment. In  times  of  disturbed  market  conditions,  such 
as  the  present,  when  it  is  almost  impossible  to  secure 
deliveries  of  many  important  materials  and  supplies, 
the  follow-up  work  of  the  purchasing  departments  of 
great  industries  has,  however,  assumed  large  propor- 
tions. Thus,  in  the  Westinghouse  Electric  &  Manufac- 
turing Company  the  follow-up  division  in  the  purchasing 
department  now  consists  of  38  persons  out  of  a  total  of 
104  employees  in  the  department,  and  in  the  Willys- 
Overland  Company  of  11  persons  out  of  a  total  of  56 
employees  in  the  department.  In  some  cases  the  im- 
portance of  the  follow-up  work  has  resulted  in  the  or- 
ganization of  a  separate  follow-up  division,  coordinate 
with  the  purchasing  department.  Such  is  the  case,  for 
example,  in  the  Ford  Motor  Company.    The  follow-up 

193 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

department  in  this  company  is  charged  with  following 
up  deliveries  of  all  production  material  and  also  de- 
liveries of  castings  from  the  company's  foundry,  while 
the  follow-up  of  deliveries  on  miscellaneous  purchases  is 
left  to  the  general  clerical  force  of  the  purchasing  de- 
partment. 

The  organization  for  the  follow-up  of  purchase  or- 
ders by  government  purchasers  is,  as  a  rule,  very  in- 
formal. Where  purchasing  departments  have  been  es- 
tablished the  work  is  often  left  to  a  single  clerk.  In 
probably  the  majorities  of  cities,  as  in  many  railroads, 
follow-up  of  purchase  orders  is  left  to  the  department 
or  office  which  is  to  receive  the  deliveries.  In  some  cities, 
however,  the  departments  or  offices  to  which  the  goods 
are  to  be  delivered  are  responsible  for  bringing  over- 
due deliveries  to  the  attention  of  the  purchasing  de- 
partment and  all  pressure  on  the  dealer  must  be  exerted 
through  this  department. 

Information  Needed  in  FoUow-Up  Work.  In  a  manu- 
facturing organization,  follow-up  must  be  based  upon 
a  complete  and  up-to-date  knowledge  of  the  progress  of 
the  production  program.  In  the  Pullman  Company  the 
follow-up-  division  is  provided  with  material  lists  show- 
ing precisely  what  materials  or  parts  are  to  go  into  each 
car,  with  the  lay-down  list  which  schedules  month  by 
month  the  rate  of  progress  to  be  made  on  cars,  and  with 
daily  reports  stating  the  number  of  cars  started  each 
day.  This  information  in  the  hands  of  the  purchasing 
agent  is  made  available  to  the  division  of  the  depart- 
ment which  handles  the  follow-up  work,  and  deliveries 
are  enforced  in  accordance  therewith. 

In  almost  all  companies   shortage  reports  received 
daily  from  the  general  storekeeper  or  from  the  produc- 

194 


FOLLOW-UP 

tion  superintendent  enable  the  follow-up  division  or  de- 
partment to  know  on  what  articles  it  is  necessary  to 
bring  the  most  immediate  pressure  to  secure  prompt 
delivery.  Without  these  schedules  and  shortage  reports 
the  follow-up  divisions  would  be  working  oftentimes  to 
no  purpose  in  enforcing  deliveries  made  unnecessary  by 
changes  in  the  production  schedule  while  at  the  same 
time  neglecting  deliveries  of  the  utmost  importance. 

All  the  information  needed  as  to  each  individual  or- 
der is  usually  obtainable  from  the  purchase  order  it- 
self; and  in  most  industrial  concerns  the  follow-up  de- 
partment is,  therefore,  supplied  with  copies  of  all  orders. 
In  addition,  most  large  concerns  require  dealers  to  ac- 
knowledge the  receipt  of  purchase  orders,  but  this  prac- 
tice is  seldom  followed  by  governments. 

In  the  case  of  production  materials  it  is  customary  in 
large  manufacturing  concerns  to  transfer  the  informa- 
tion found  on  the  copies  of  purchase  orders  to  a  follow- 
up  record.  This  usually  is  in  card  or  loose-leaf  form,  a 
separate  card  or  sheet  for  each  part  or  material  used. 
In  addition  to  the  currently  maintained  information  rel- 
ative to  the  several  outstanding  orders  of  that  material 
or  part,  it  frequently  contains  data  as  to  the  quantity  of 
the  material  or  number  of  the  part  entering  into  each 
unit  of  the  finished  product. 

For  other  than  production  materials  and,  in  general, 
for  all  miscellaneous  purchases,  it  is  common  to  use  the 
copy  of  the  purchase  order  itself  as  the  follow-up  record. 

Methods  of  Follow-Up.  The  methods  used  in  follow-up 
are  chiefly  through  correspondence,  inspection  at  the 
source  and  the  use  of  traveling  "stock  chasers." 

A  good  example  of  a  highly  developed  system  of  fol- 
low-up by  means  of  correspondence  is  that  of  the  West- 

195 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

inghouse  Electric  &  Manufacturing  Company.  The  key 
of  this  system  is  a  follow-up  diary.  A  sheet  of  this 
diary  is  used  for  each  day.  On  the  sheet  for  a  given 
due  date  are  recorded  all  purchase  orders  on  which  de- 
liveries are  promised  for  that  date/  such  promise  being 
made  by  the  dealer  on  the  form  used  by  him  in  acknowl- 
edging the  order.  Four  days  after  the  due  date  the  diary 
sheet  is  taken  out  of  the  file  by  the  diary  clerks  and 
the  duplicate  copy  is  sent  to  the  proper  follow-up  man. 
In  case  a  partial  delivery  is  made  and  a  further  delivery 
promised  for  a  future  date,  this  promise  is  transferred 
to  the  production  diary  of  the  proper  date.  It  may  be 
necessary  in  some  cases  to  open  several  new  dates  suc- 
cessively before  a  purchase  order  is  completed. 

In  addition  a  blank  sheet  of  the  production  diary  is 
kept  in  each  follow-up  man's  file  maintained  for  him  by 
the  production  diary  clerks.  This  blank  sheet  is  for  in- 
definite promises  by  dealers,  such  as  "earliest  possible 
date."  These  indefinite  promises  are  taken  up  with  each 
dealer  and  as  rapidly  as  possible  are  transferred  to  a 
regular  sheet  having  a  definite  date. 

The  receiving  department  reports  promptly  to  the 
diary  clerks  all  receipts  of  material  so  that  they  may 
know  as  soon  as  a  purchase  order  is  completed. 

This  company  uses  the  above  described  system  for  the 
follow-up  of  all  purchases  whether  of  production  mate- 
rials or  of  miscellaneous  supplies,  tools,  etc.  It  is  used 
for  local  purchases  as  well  as  for  purchases  from  an 
out-of-town  dealer  or  manufacturer.     It  is  considered 

1  While  the  diary  sheets  are  filed  by  days,  an  index  is  kept  of  all 
purchase  orders  arranged  by  requisition  number,  showing  the  name 
of  the  follow-up  man  whose  duty  it  is  to  secure  deliveries.  The 
reason  for  indexing  purchase  orders  under  the  requisition  number  is 
that  requisitioners  within  the  company  almost  always  make  inquiries 
concerning  deliveries  under  the  requisition  number  rather  than  under 
the  purchase  order  number. 

196 


FOLLOW-UP 

best  by  this  company  to  make  follow-up  automatic  no 
matter  how  important  or  unimportant  the  purchases. 

Inspection  at  the  source  is  largely  used  in  the  case  of 
important  purchases,  particularly  of  production  mate- 
rials. The  engineer  or  other  representative  of  the  pur- 
chaser located  at  the  factory  of  the  vendor  not  only  in- 
spects the  product  in  course  of  manufacture  to  insure 
its  quality,  but  often  also  brings  pressure  to  bear  to  in- 
sure timely  delivery. 

Inspection  at  the  source  is,  however,  unusual  among 
governments  except  on  very  important  purchases  of  ar- 
ticles made  as  per  specification,  such  as  manhole  covers, 
sewer  pipe,  etc. 

Traveling  "stock  chasers"  are  used  to  a  large  extent 
under  the  present  disturbed  market  conditions,  particu- 
larly in  enforcing  deliveries  of  metals  and  metal  prod- 
ucts. Thus,  of  the  thirty-eight  members  of  the  follow-up 
division  of  the  purchasing  department  of  the  Westing- 
house  Electric  &  Manufacturing  Company,  six  are  con- 
stantly on  the  road  provided  with  information  currently 
received  from  the  purchasing  department  as  to  what  ma- 
terials are  most  immediately  required.  Some  companies, 
however,  adopt  the  policy  of  sending  traveling  "stock 
chasers"  on  the  road  only  in  case  of  very  urgent  neces- 
sity, it  being  considered  that  this  method  loses  its 
"punch"  if  used  regularly. 

In  many  cases  of  course  delay  in  delivery  is  due  to  no 
fault  of  the  shipper  but  to  poor  service  in  transporta- 
tion. In  such  cases  the  follow-up  division  or  depart- 
ment notifies  the  traffic  department  of  the  delay  and  it 
is  then  the  duty  of  the  traffic  department  to  take  up  the 
matter  with  the  railroad  or  express  company.  The  ~,^ 
Willys-Overland  Company  provides  a  formal  notice 
from  the  follow-up  division  of  the  purchasing  depart- 

197 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ment  to  the  traffic  department  to  trace  a  shipment.  Of 
this  notice  the  original  and  first  copy  go  to  the  traffic 
department  and  one  copy  goes  to  the  production  de- 
partment to  give  the  latter  department  an  opportunity  to 
determine  whether  or  not  it  is  essential  to  secure  imme- 
diate delivery,  thus  avoiding  the  necessity  of  putting  un- 
necessary pressure  on  the  railroad  company  by  the  traf- 
fic department.  By  this  means  the  "stock  chasers"  in 
the  factory,  who  are  sometimes  overambitious,  are  held 
in  proper  check  by  the  production  department,  which 
has  at  hand  of  course  current  information  as  to  the  pre* 
cise  progress  made  against  the  production  schedule. 


CHAPTER  XIV 

INSPECTION 

Prompt  and  accurate  inspection  of  purchased  goods 
on  their  receipt  is  obviously  more  important  among  gov- 
ernments than  among  private  purchasers,  since  gov- 
ernments are  not,  as  a  rule,  free  to  limit  their  choice  of 
vendors  to  those  upon  whom  they  can  rely  for  honesty 
and  accuracy.  Many  highly  efficient  modern  corpora- 
tions do  not  provide  for  a  very  rigid  inspection  of  goods 
on  delivery  to  insure  compliance  with  specifications.  In- 
spection on  delivery  usually  extends  to  the  point  of  in- 
suring from  a  percentage  inspection  that  the  goods  com- 
ply with  specifications  as  to  quality  and  sizes — a  pro- 
cedure which  is  obviously  necessary  to  prevent  goods 
finding  their  way  into  stock  which  are  obviously  defect- 
ive and  the  production  department  being  delayed  at  a 
critical  time  by  finding  that  stock  does  not  comply  with 
its  requirements.  But  the  percentage  inspection  in  many 
companies,  while  carefully  done,  is  far  less  important 
than  the  inspection  given  to  stock  during  the  course  of 
its  use.  Material  which  proves  defective  by  the  develop- 
ment of  latent  imperfections  is  brought  to  the  attention 
of  vendors  by  the  purchasing  department  and  adjust- 
ments are  as  a  rule  readily  made.  Obviously  this  is 
possible  only  by  reason  of  the  fact  that  private  com- 
panies are  able  to  choose  their  sources  of  supply  and  to 
limit  them  to  companies  upon  which  they  can  rely  for 
honesty  and  care  in  manufacture  and  upon  which  they 
can  depend  also  for  entire  willingness  to  make  good  at 

199 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

any  stage  any  defects  in  stock.  A  further  reason  why 
inspection  of  quahty  on  delivery  becomes  a  minor  prob- 
lem among  many  private  purchasers  is  the  large  extent 
to  which  dependence  is  placed  upon  inspection  at  the 
source  of  large  and  important  purchases  of  goods  man- 
ufactured in  accordance  with  specifications. 

Despite  the  far  greater  need  which  thus  exists  in  gov- 
ernment purchasing  for  thorough  inspection  on  deliv- 
ery, it  may  safely  be  said  that  governments  are,  as  a  rule, 
far  behind  private  purchasers  in  ,this  respect.  This  is 
true  even  in  the  case  of  governments  which  have  de- 
veloped central  purchasing  departments. 

Exceptions  to  this  statement  may  be  found  in  many 
cities  and  in  departments  of  the  federal  government 
and  of  states  in  the  inspection  of  a  few  items,  such  as 
coal  and  food  supplies.  For  example,  in  New  York 
City  samples  of  coal  are  put  to  a  most  careful  analysis 
by  the  central  testing  laboratory;  but  it  is  often  true 
that  samples  are  poorly  taken  or  sometimes  even  taken 
at  the  yard  before  loading,  giving  an  opportunity  for 
substitutions.  On  the  whole,  inspection  of  deliveries 
remains  one  of  the  weakest  points  in  governmental  pur- 
chasing. It  is  characterized  by  inexpertness,  laxness  and 
petty  graft,  inconsistency  in  inspection  as  between  de- 
liveries at  different  times  or  at  dififerent  places,  over- 
rigidity,  i.  e.,  the  rejection  of  adequate  materials  for 
petty  reasons,  and  slowness. 

Causes  of  Inefficient  Inspection  of  Government  Purchases. 

A  basic  cause  of  the  weakness  of  governmental  inspec- 
tion is  the  failure  properly  to  define  and  locate  respon- 
sibility for  the  making  of  correct  deliveries.  In  many 
cities,  as  has  been  previously  stated,  the  responsibility 
of  the  purchasing  department  ceases  at  the  issuance  of 

200 


INSPECTION 

purchase  orders,  even  the  follow-up  being  left  to  the 
receivers.  In  other  cities  the  responsibility  of  the  pur- 
chasing department  ceases  with  the  delivery  of  goods. 
In  the  departments  which  receive  and  use  the  articles 
purchased,  the  highest  administrative  officers  have,  as 
a  rule,  small  conception  of  the  elements  of  the  supply 
problem  and  of  the  importance  of  close  expert  inspec- 
tion, and  there  is  no  other  officer,  as  a  rule,  definitely 
charged  with  responsibility  for  accuracy  and  prompt- 
ness in  this  respect. 

Again,  the  several  subordinates  in  the  departments 
who  receive  goods  are  often  very  poorly  equipped  by 
training  or  experience  to  make  adequate  inspection.  It 
is  hardly  to  be  expected  that  either  a  storekeeper  of  a 
small  stock  room  or  a  general  storekeeper  handling  a 
large  general  stock  will  be  expert  in  inspecting  all  kinds 
of  supplies,  materials  and  equipment.  Expertness  in  in- 
spection requires  more  than  a  general  knowledge  of 
things  to  be  inspected.  Superficial  knowledge  of  the 
qualities  of  articles  is  easily  taken  advantage  of.  Ex- 
pert inspection  requires  a  detailed  study  of  methods  of 
manufacture  of  materials  and  of  the  results  to  be  ex- 
pected from  each  grade  or  quality  of  article.  The  aver- 
age man  is  not  equipped  to  inspect  shoes  or  cloth  even 
after  long  general  experience  with  their  use.  It  is  for 
this  reason  that  the  War  Department  and  the  Navy  De- 
partment have  in  recent  years  developed  specialists  in 
inspection  and  urged  upon  Congress  the  necessity  of  pro- 
viding for  an  increased  number  of  these  specialists.  It 
is  for  this  reason  also  that  the  Navy  Department  turns 
over  to  the  Bureau  of  Animal  Industry  of  the  Depart- 
ment of  Agriculture  the  inspection  of  its  meats  on  de- 
livery. It  has  been  stated  by  the  representative  of  a 
leading  lumber  dealer  in  New  York  City  that  while  the 

201 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

city's  specifications  for  lumber  are  among  the  best,  its 
inspections  on  delivery  are  almost  ludicrously  inade- 
quate, by  reason  of  the  utter  lack  of  expert  knowledge 
on  the  part  of  the  inspectors.  Indeed  in  many  cities  and 
governmental  organizations  specifications  are  promul- 
gated v^ithout  provision  being  made  for  either  the  ex- 
pert personnel  or  the  technical  facilities  required  for 
their  enforcement. 

Lastly,  in  very  few  governmental  organizations  does 
there  obtain  a  sufficient  centralization  of  deliveries  to 
make  adequate  inspection  practicable.  Deliveries  are 
distributed  over  a  number  of  scattered  points  at  which 
no  expert  inspection  is  possible.  Thus,  in  New  York 
there  are  upward  of  2,000  delivery  points  in  the  several 
departments  and  at  many  of  these  points  deliveries  are 
made  daily  by  many  dealers.  It  is  manifestly  impos- 
sible for  the  specialized  inspectors  whom  the  city  em- 
ploys to  cover  deliveries  in  their  field  of  inspection  in  all 
parts  of  the  city. 

Centralization  of  Deliveries.  Expert  inspection  on  many 
important  government  purchases  is  obtainable  only  by 
consolidating  deliveries.  This  result  is  already  secured 
in  New  York  City  in  the  purchase  of  drugs  and  chemi- 
cals and  hospital  and  laboratory  supplies  through  the 
laboratory  department  of  the  department  of  public  char- 
ities, which  purchases  and  stores  also  for  the  depart- 
ments of  Bellevue  and  allied  hospitals,  health  and  cor- 
rection. The  same  result  is  also  secured  in  New  York 
City,  so  far  as  concerns  coffee,  by  the  purchase  of  coffee 
in  bulk  by  the  department  of  public  charities  for  roast- 
ing and  distribution  not  only  to  the  charities  depart- 
ment itself  but  also  to  the  three  other  institutional  de- 
partments.   The  city  of  Chicago  is  accomplishing  some- 

202 


INSPECTION 

what  the  same  result  through  the  central  purchase  and 
storage  of  goods  for  several  departments  by  the  de- 
partment of  public  works,  the  goods  purchased  consist- 
ing of  tools,  implements,  hardware,  construction  mate- 
rials, etc.  Probably  the  majority  of  large  cities  provide 
central  delivery  for  stationery,  office  supplies  and  minor 
equipment. 

Centralization  of  delivery  and  inspection  clearly  gives 
opportunity  for  the  development  of  an  expert  inspection 
staff  under  a  responsible  officer.  Not  only  expertness 
and  speed  in  inspection  but  definite  location  of  respon- 
sibility result  from  such  centralization.  A  further  re- 
sult is  consistency  in  inspection  as  between  different 
times  and  different  inspectors,  in  other  words,  the  elimi- 
nation of  the  personal  element  through  supervision  and 
the  development  of  definite  methods  of  inspection.  This 
point  is  very  important  when  it  is  considered  that  to-day 
in  many  cities  dealers  are  able,  from  their  knowledge 
of  the  varying  personal  tastes  and  preferences  of  in- 
spectors, to  make  to  certain  points  successful  deliveries 
of  articles  which  have  previously  been  rejected  at  other 
points. 

Centralization  of  delivery  and  inspection  obviously 
need  not  be  extended  to  all  articles  purchased.  Many 
bulky  articles  and  many  special  items  may  be  delivered 
direct  to  a  local  store  or  to  a  point  of  use.  Nor  does 
it  mean  delivery  to  one  point.  It  may  be  successfully 
operated,  for  example,  as  is  done  in  Minneapolis,  in  the 
case  of  the  purchase  of  cement,  by  delivery  in  carload 
lots  to  central  points  in  several  parts  of  the  city,  each 
department  thereupon  sending  trucks  for  its  share  of  the 
purchase.  What  inspections  should  be  made  by  the  ex- 
pert specialists  of  the  central  bureaus  and  what  ones 
should  be  left  to  the  users  of  the  goods  is  a  matter  for 

203 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

adjustment  which  may  be  readily  worked  out.  But  a 
central  inspection  force  for  a  city  may  be  readily  made 
available  for  special  inspections  desired  by  departments 
on  direct  deliveries. 

Organization  of  Inspection  Service.  As  already  stated, 
in  many  cities  and  also  in  many  other  governmental 
agencies  inspection  both  as  to  quantity  and  quality  is 
left  to  the  receivers  of  goods,  to  stock  clerks,  to  engi- 
neers, etc.  This  is  probably  the  prevailing  practice 
among  governments.  However,  in  some  city  depart- 
ments and  in  some  divisions  of  the  federal  and  of  state 
governments  organizations  have  been  developed  for 
the  specific  purpose  of  inspecting  purchased  goods.  Thus, 
in  the  health  department  of  New  York  City  the  inspec- 
tion of  purchases  is  in  the  hands  of  two  inspectors  who 
operate  over  the  entire  city.  In  some  cities,  as  St.  Louis 
and  Cincinnati,  the  central  purchasing  departments  have 
small  inspection  forces  as  component  elements  of  their 
organization.  As  a  rule,  inspection  by  the  purchasing 
department  inspectors  is  confined  to  a  few  articles  con- 
sidered to  be  of  especial  importance,  such  as  forage, 
lumber  or  coal.  In  other  cases,  again,  the  central  pur- 
chasing department  inspectors  serve  to  furnish  to  the 
purchasing  agent  a  check  inspection  upon  the  inspection 
of  the  several  departments. 

It  should  be  noted  that  in  establishing  inspection  as 
one  of  the  functions  of  the  purchasing  agent,  cities  are 
going  contrary  to  the  best  modern  practice  of  private 
business.  It  is  considered  to  be  bad  organization  to 
place  inspection  under  the  supervision  of  the  purchasing 
agent,  inasmuch  as  the  natural  tendency  of  the  pur- 
chasing agent  is  to  pass  goods  which  he  has  purchased, 
especially  those  which  he  considers  to  have  been  pur- 

204 


INSPECTION 

chased  at  a  bargain.  Inspection  under  the  purchasing 
agent  also  obviously  furnishes  opportunities  for  graft 
and  favoritism. 

On  the  other  hand,  it  is  considered  by  some  to  be 
bad  practice  to  place  inspection  under  the  general  store- 
keeper, on  the  ground  that  his  tendency  is  to  elevate 
quality  at  the  expense  of  price — in  other  words,  a  ten- 
dency opposite  to  that  of  the  purchasing  agent,  which 
is  said  by  adherents  of  this  theory  to  be  to  lower  price 
at  the  expense  of  quality.  Private  practice  inclines  to- 
ward making  the  expert  inspection  force  a  part  of  the 
auditing  department,  thus  rendering  it  independent  of 
both  the  general  storekeeper  and  the  purchasing  agent. 
Whether  or  not  this  check  inspection  by  the  department 
of  finance  would  be  necessary,  were  central  delivery  and 
inspection  established,  is  a  question  which  appears  to  re- 
solve itself  in  the  negative.  The  chief  need  of  this  check 
inspection  arises  from  the  fact  that  deliveries  are  scat- 
tered over  so  many  delivery  points,  thus  giving  no  op- 
portunity for  ready  checking  up  of  the  accuracy  and 
honesty  of  inspections.  It  is  believed  that  were  a  cen- 
tral inspection  force  established  the  finance  department's 
check  inspection  on  accepted  goods  would  become  super- 
fluous. 

In  New  York  City  a  check  upon  the  inspection  of  the 
several  purchasing  departments  is  furnished  by  the  in- 
spection division  of  the  bureau  of  audit  of  the  depart- 
ment of  finance.  This  division  is  furnished  with  copies 
of  all  purchase  orders  and  as  soon  as  goods  arrive  ac- 
companied by  quadruplicate  copies  of  invoices,  a  copy 
of  the  invoice  is  forwarded  to  the  division  as  a  notice 
of  arrival.  The  city  is  divided  into  districts  for  pur- 
poses of  this  check  inspection,  an  inspector  being  in 
charge  of  each  district.     There  are  a  few  expert  spe- 

205 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

cialists  in  this  division  of  inspection  who  are  detailed 
to  special  work  in  all  parts  of  the  city,  for  example,  one 
specialist  on  meats  and  poultry,  another  on  forage,  etc. 

Need  for  a  National  Service  in  Developing  Methods  of 
Inspection  and  Testing.  There  is  an  obvious  need  for 
the  development  of  a  national  service  to  aid  in  prepar- 
ing specifications  and  methods  of  inspection  and  test  and 
to  issue  warnings  against  fraudulent  practices  in  manu- 
facturing. The  national  Bureau  of  Chemistry  and  Bu- 
reau of  Standards  should  be  looked  to  for  this  purpose. 
Both  have  expressed  a  desire  to  aid  in  this  work,  but 
cities  and  other  governmental  purchasers  have  not  very 
largely  availed  themselves  of  their  offers.  It  is  prob- 
able that  these  bureaus  are  more  used  by  private  manu- 
facturers and  dealers  in  preparing  specifications  and  in 
developing  standard  methods  of  inspection  and  test  than 
by  governments.  Both  are  equipped  to  the  fullest  ex- 
tent for  these  purposes.  Assistance  rendered  to  all  mu- 
nicipalities throughout  the  country  in  preparing  speci- 
fications and  methods  of  inspection  and  test,  the  results 
being  made  available  to  the  general  public,  would  most 
certainly  have  a  tonic  effect  upon  trade  in  general ;  this 
is  particularly  true  of  warnings  against  fraudulent  prac- 
tices. Such  a  service  would  make  it  possible  for  many 
cities  to  develop  specifications  and  methods  for  inspec- 
tion and  test  which  are  now  not  equipped  to  do  so, 
although  obviously  both  specifications  and  methods  of 
inspection  must  be  adapted  to  local  requirements  and 
technical  facilities.  A  national  service  might  do  much 
to  show  the  emphasis  to  be  placed  on  each  point  in  a 
specification,  what  points,  for  example,  should  be  cause 
for  out  and  out  rejection  and  what  points  for  making 

206 


INSPECTION 

adjustments.  This  point  is  important  in  view  of  the 
fact  that  the  severity  of  test  by  governments  is  in  many 
cases  absurd,  unnecessarily  discouraging  competition 
and  increasing  prices. 


CHAPTER  XV 
HANDLING  INVOICES  AND  PAYING  BILLS 

A  complete  checking  of  a  dealer's  invoice  involves 
the  determination  of  whether  the  price  and  terms  are 
correct,  whether  the  quantity  invoiced  is  the  quantity 
ordered,  whether  the  quantity  delivered  is  the  quantity 
invoiced,  whether  extensions  and  footings  are  correct 
and  whether  the  invoice  has  not  previously  been  paid  in 
whole  or  in  part.  In  all  this  checking  accuracy  is  first 
essential  but  of  almost  equal  importance  is  promptness. 
Promptness  in  checking  an  invoice  facilitates  payment, 
thereby  securing  discounts  and  encouraging  future  com- 
petition; moreover,  it  is  necessary  if  purchase  records, 
stores  accounts  and  general  accounts  are  to  be  kept  up 
to  date. 

Examination  of  the  practice  of  private  corporations 
and  governments  in  the  handling  of  invoices  and  pay- 
ing bills  discloses  many  interesting  variations  which  it 
will  be  of  value  to  consider  in  some  detail. 

Delivery  of  Invoices  with  Goods.  Private  purchasers 
never  require  that  invoices  be  delivered  with  goods. 
Among  American  cities  the  practice  is  about  evenly  di- 
vided on  this  point.  In  New  York  City  the  require- 
ment that  invoices  must  be  delivered  with  the  goods  is 
stated  on  the  face  of  all  purchase  orders  with  the  warn- 
ing that  if  it  is  not  complied  with  the  goods  will  not  be 
received.  This  requirement  is  made  by  the  department 
of  finance  and  is  enforced  in  a  great  majority  of  cases, 

208 


HANDLING  INVOICES  AND  PAYING  BILLS 

but  it  has  been  the  cause  of  frequent  delays  both  to  the 
city  in  receiving  goods  and  to  dealers  in  receiving  pay- 
ment. It  is  undoubtedly  a  fact,  also,  that  this  practice 
dissipates  responsibility  for  prompt  payment  of  invoices 
in  that  the  storekeeper  or  other  receiver  of  goods  to 
v^'hom  invoices  first  come  is  not  impressed  as  is  the  pur- 
chasing department  with  the  necessity  of  prompt  han- 
dling of  invoices  in  order  to  facilitate  payment  and 
thereby  secure  cash  discounts  and  encourage  future  com- 
petition. The  requirement  does  not  accord  with  the 
common  commercial  practice,  and  it  is,  therefore,  prac- 
tically impossible  to  get  dealers  invariably  to  comply 
with  it.  Much  may  be  said  on  the  dealer's  side.  Among 
other  things,  it  is  the  usual  practice  for  a  mere  rough 
memorandum  to  be  made  out  at  the  time  shipments  are 
made  and  for  this  rough  memorandum  to  be  used  in  the 
office,  usually  the  following  morning,  in  making  out  a 
bill  for  the  shipment.  So  long  as  this  is  the  usual  prac- 
tice of  vendors.  New  York  City  and  every  other  city 
which  requires  that  invoices  be  delivered  with  the  goods 
is  certain  to  find  this  requirement  a  source  of  constant 
controversy  and  delay. 

Requirement  of  Certifications  with  Invoice.  It  is  not 
uncommon  for  governments  to  require  the  submission, 
with  invoices,  of  more  or  less  elaborate  certificates  or 
affidavits  as  to  the  propriety  of  the  claim  represented  by 
the  invoice.  Thus,  Baltimore  requires  that  the  dealer  in 
making  deliveries  secure  on  the  original  copy  of  the 
purchase  order  the  signature  of  the  person  who  receives 
the  goods  or  otherwise  witnesses  the  fulfillment  of  the 
order,  and  thereupon  return  the  purchase  order  thus 
certified  with  invoices  in  duplicate  to  the  purchasing 
department.     St.  Paul  requires  that  with  the  invoices 

209 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

must  be  submitted  the  original  purchase  order,  bearing 
an  affidavit  that  the  annexed  claim  is  just  and  true,  that 
the  services  therein  charged  were  actually  performed  or 
the  materials  delivered,  that  no  part  of  the  account, 
claim  or  demand  has  been  paid,  that  the  deponent  is  not 
an  officer,  official  or  employee  of  the  city  of  St.  Paul, 
and  that  no  officer,  official  or  employee  of  the  city  is  a 
party  to  or  concerned  directly  or  indirectly  in  the  claim. 
Schenectady,  Syracuse,  and  other  cities  of  the  second 
class  of  New  York  State  furnish  with  all  purchase  or- 
ders a  claim  blank  to  be  returned  to  the  department  or 
bureau  making  the  purchase.  This  claim  blank,  simi- 
larly to  the  copy  of  the  purchase  order  of  St.  Paul,  re- 
quires an  affidavit  that  the  services  have  been  performed 
or  materials  furnished,  that  the  prices  charged  therefor 
are  the  prices  specified  under  a  contract,  or  if  not  under 
contract  at  reasonable  market  prices,  that  no  previous 
claim  has  been  presented  for  the  work,  materials  or  ex- 
penses, or  any  part  thereof  paid,  and  that  no  city  officer 
or  employee  or  partner  or  agent  of  any  such  officer  or 
employee  or  any  corporation  of  which  such  officer  or 
employee  is  a  director  or  officer  is  or  has  been  directly 
or  indirectly  interested  therein.  This  affidavit  must  also 
include  the  deposition  that  the  claimant  is  the  real  party 
in  interest  in  the  claim. 

Requirements  of  this  type,  while  perhaps  adequately 
justified  in  the  case  of  large  purchases,  are  undoubtedly 
hurtful  when  attached  to  all  purchases  however  unim- 
portant. They  tend  to  raise  prices  and  do  much  to  re- 
strict competition  to  local  dealers. 

Number  of  Copies  of  Invoice  Required.  Great  varia- 
tion exists  in  the  number  of  copies  of  invoices  required 
of  vendors,  both  in  commercial  and  governmental  prac- 

2IO 


HANDLING  INVOICES  AND  PAYING  BILLS 

tice.  In  both  fields  instances  are  found  where  only  one 
copy  is  required  and  other  instances  where  as  many  as 
five  are  required. 

Some  concerns,  like  the  Westinghouse  Electric  & 
Manufacturing  Company,  and  a  few  cities,  like  Min- 
neapolis and  Dayton,  require  but  one  copy  of  the  invoice. 
It  is  believed  by  these  organizations  that  where  but  one 
copy  of  an  invoice  is  accepted,  the  danger  of  duplicate 
payments  on  the  same  invoice  is  eliminated. 

An  example  of  a  concern  which  requires  invoices  in 
duplicate  is  the  Ford  Motor  Company.  Here  one  copy 
remains  in  the  purchasing  department  for  checking 
prices  and  terms,  and  the  duplicate  copy  is  transmitted 
at  once  to  the  follow-up  department,  if  the  delivery  cov- 
ered thereby  is  of  production  materials.  If  the  deliv- 
ery is  of  non-production  materials  or  equipment,  it  re- 
mains in  the  purchasing  department  to  post  follow-up 
records. 

The  requirement  of  triplicate  invoices  is  fairly  com- 
mon. Thus  the  Willys-Overland  Company  requires  that 
invoices  be  sent  in  triplicate.  Of  these  three  copies  the 
first  copy,  which  alone  is  priced,  is  sent  to  the  purchase 
accounting  department,  the  second  to  the  follow-up  di- 
vision and  the  third  to  the  receiving  department.  Cin- 
cinnati also  requires  triplicate  invoices. 

A  typical  instance  of  the  requirement  of  invoices  in 
quadruplicate  is  furnished  by  New  York  City.  Of  the 
four  copies  required,  all  of  which  are  delivered  with 
the  goods,  one  is  immediately  forwarded  by  the  receiver 
of  the  goods  to  the  inspection  division  of  the  bureau  of 
audit  of  the  department  of  finance,  in  order  that  notice 
may  be  given  to  provide  for  a  check  inspection.  Of  the 
remaining  three  copies,  one  is  kept  by  the  receiver  of 
the  goods  and  the  other  two  are  stamped  with  a  cer- 

211 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

tification  as  to  quantity  and  quality  and  forwarded  to 
the  departmental  auditing  office. 

The  New  York  Central  Railroad  requires  invoices  in 
quintuplicate.  In  the  purchasing  agent's  office  the  first 
and  second  copies  are  sent  to  the  consignee  who  returns 
the  first  copy  to  the  office  of  the  purchasing  agent  and 
retains  the  second  copy.  The  third  copy  remains  as  the 
purchasing  agent's  office  record.  The  fourth  and  fifth 
copies,  printed  in  red,  are  used  in  follow-up  work  to 
secure  prompt  handling  by  receivers  of  goods  of  bills 
subject  to  discount  and  prompt  notice  of  receipts  by 
them. 

Where  the  system  is  adopted  by  cities  of  matching  the 
report  of  material  received  against  the  invoice  as  a 
check  of  quantity  and  quality,  it  is  difficult  to  see  why 
more  than  two  copies  of  the  invoice  would  be  necessary 
— one  to  be  kept  by  the  purchasing  department  as  a  per- 
manent record  and  the  other — the  original — to  be  for- 
w^arded  to  the  accounting  or  auditing  department. 

Use  of  Purchaser's  Stationery  for  Invoices.  While  most 
private  purchasers  permit  dealers  to  use  their  own  sta- 
tionery for  invoices,  some  of  them,  particularly  rail- 
roads, require  invoices  to  be  submitted  on  stationery 
supplied  by  them.;  and  this  is  also  the  prevailing  prac- 
tice among  governments.  The  purpose  of  this  require- 
ment is  obvious ;  it  facilitates  the  purchaser's  inspection, 
accounting  and  record  work  by  bringing  invoice  infor- 
mation to  him  in  uniform  shape  and  in  the  manner  ex- 
actly suited  to  the  needs  of  his  accounting  and  inspec- 
tional  system.  As  an  illustration  of  this  may  be  cited 
the  invoice  stationery  supplied  to  its  vendors  by  the 
Packard  Company.  The  third  copy  of  this  form  is  nar- 
row and  does  not,  therefore,  show  prices,  being  de- 

212 


HANDLING  INVOICES  AND  PAYING  BILLS 

signed   for  the  information  of  the  stock  department 
which  need  not  know  prices. 

From  the  standpoint  of  the  vendor  the  requirement 
that  invoice  be  made  on  the  buyer's  stationery  is  usually 
regarded  as  undesirable.  The  dealer's  own  invoice  sta- 
tionery is  prepared  to  conform  to  his  entire  system  of 
accounting,  and  it  may  mean  a  considerable  disturbance 
in  his  office  routine  to  be  required  to  make  out  invoices 
in  accordance  with  the  preference  of  each  individual 
customer.  Projects  often  advanced  by  associations  of 
purchasing  agents  and  at  times  also  by  mercantile  and 
industrial  companies  for  standardizing  invoice  forms 
will  probably  make  little  headway  until  accounting  sys- 
tems are  standardized. 

An  additional  reason  why  vendors  prefer  to  use  their 
own  stationery  is  of  course  the  opportunity  which  is. 
thus  given  them  of  advertising  their  firm  name. 

Checking  Invoices.  It  is  the  usual  practice  to  register 
invoices  before  checking  them.  These  registrations 
vary,  in  some  cases  being  under  the  name  of  the  dealer, 
in  other  cases  being  simply  a  numerical  list  arranged  in 
order  of  arrival  of  invoices.  The  chief  purpose  of  reg- 
istration is  of  course  to  furnish  the  means  of  following 
all  invoices  through  to  final  payment  in  order  that  none 
may  be  lost  or  unnecessarily  delayed.  A  further  pur- 
pose is  to  secure  figures  as  to  total  values  of  purchased 
goods,  these  in  some  cases  serving  as  a  control  over  the 
accuracy  of  purchase  accounts. 

The  checking  of  invoices  involves  three  distinct  ele- 
ments— the  checking  of  prices  and  terms  and  of  quanti- 
ties invoiced  against  the  purchase  order  or  agreement, 

the  checking  of  quantities  and  quality  received  against 

213 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

those  invoiced  and  the  checking  of  extensions  and  foot- 
ings. 

Checking  for  prices  and  terms  and  for  quantities  in- 
voiced is  generally  done  by  the  purchasing  department. 
The  purchasing  department  has  first-hand  knowledge 
based  on  its  purchase  records  of  everything  pertaining 
to  purchase  transactions,  and  any  other  office  responsible 
for  checking  invoices  must  turn  to  the  purchasing  de- 
partment for  information  or  for  adjustment  of  discrep- 
ancies. The  terms  of  purchase  are,  it  is  true,  to  be 
found  on  the  copy  of  the  purchase  order  to  the  account- 
ing division  and  should  be  also  on  the  invoice,  but  the 
purchasing  department  is  in  a  far  better  position  than 
other  offices  to  know  the  precise  importance  of  each  ele- 
ment in  the  transaction  and  the  effect  that  delay  in  pay- 
ment will  have  on  competition  and  future  prices  and 
terms. 

While  invoices  are  thus  usually  first  checked  by  the 
purchasing  department,  they  are,  in  some  companies, 
first  received  by  the  auditing  division  or  department  be- 
fore being  transmitted  to  the  purchasing  department. 
The  reason  for  this  procedure  is  probably  that  there 
may  be  a  check  against  any  possibility  that  the  pur- 
chasing department  may  alter  invoices. 

An  interesting  variation  of  the  practice  of  having 
checking  for  prices  and  terms  and  for  quantities  in- 
voiced done  by  the  purchasing  department  is  found  in 
the  procedure  of  the  General  Electric  Company.  In  that 
company  the  central  purchasing  department  performs 
merely  a  price-securing  function,  purchase  orders  being 
issued  by  the  several  factories  through  a  so-called  order 
and  stores  department  in  each  factory.  The  checking 
of  invoices  for  prices,  terms  and  quantities  invoiced  is 
also  done  in  the  first  instance  by  these  factory  order 

214 


HANDLING  INVOICES  AND  PAYING  BILLS 

and  stores  departments,  but  duplicate  copies  of  the  in- 
voices are  sent  to  the  central  purchasing  department  for 
a  recheck  as  to  prices  and  terms.  It  is  said  that  several 
thousand  dollars  per  year -are  saved  as  a  result  of  this 
rechecking  of  prices  and  terms. 

While  the  checking  of  invoices  as  to  price,  terms  and 
quantity  invoiced  is  thus  generally  left  to  the  purchas- 
ing department,  instances  are  not  uncommon,  particu- 
larly among  cities,  where  this  checking  is  done  by  the 
auditing  department  on  the  basis  of  the  purchase  order. 
Such  is  the  case,  for  example,  in  the  city  of  New  York. 

In  checking  invoices  for  quantity  received  and  for 
quality,  the  usual  practice  of  private  companies,  as  has 
been  stated,  is  to  match  the  invoice  with  a  copy  of  the 
report  of  material  received  prepared  in  the  office  of  the 
receiving  department.  This  matching  of  the  report  of 
material  received  with  the  invoice  is  done  in  some  com- 
panies in  the  auditing  department,  to  which  the  original 
copy  of  the  invoice  is  immediately  sent  by  the  purchasing 
department  after  being  checked  for  price,  terms  and 
quantity.  In  other  companies  it  is  done  in  the  pur- 
chasing department  before  the  original  copy  of  the  in- 
voice is  sent  to  the  auditing  department. 

The  New  York  Central  Railroad  and  perhaps  a  ma- 
jority of  other  railroads  send  a  copy  of  the  invoice  to 
the  consignee  of  purchased  goods  for  certification  as  to 
quantity  and  quality. 

Checking  of  quality  and  quantity  of  goods  received 
is  almost  universally,  among  governments,  done  by 
storekeepers  or  other  receivers  of  goods  on  the  copy  of 
the  invoice.  In  New  York  City,  as  has  been  stated,  the 
certification  of  quantity  and  quality  received  is  placed 
upon  the  original  and  duplicate  copies  of  the  invoice  by 
the  receiver  of  goods,  these  copies  then  being  forwarded 

215 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

to  the  auditor's  office.  In  this  city  a  further  require- 
ment is  that  the  original  purchase  order  must  be  de- 
livered by  the  vendor  with  the  goods ;  and  on  this  copy 
is  placed  a  certification  by  the  receiver  of  goods  "that 
the  articles  or  services  above  specified  have  been  re- 
ceived or  performed  and  that  the  quantity  and  quality 
thereof  have  been  verified  with  the  exceptions  noted  on 
the  margin." 

The  modern  business  practice  among  private  corpora- 
tions of  matching  invoices  in  the  purchasing  or  in  the 
auditing  department  against  reports  of  goods  received 
to  check  quantity  and  quality  is  almost  never  followed 
by  governments.  Cleveland,  however,  has  adopted  this 
method,  one  copy  of  the  invoice  coming  to  the  pur- 
chasing department  and  being  there  checked  for  price 
and  quantity  invoiced  as  well  as  for  arithmetic,  and  be- 
ing also  checked  in  the  purchasing  department  against 
the  receiving  tally  from  the  department  to  which  the 
goods  were  delivered.  Thereupon  a  voucher  is  pre- 
pared in  the  purchasing  department,  and  voucher,  in- 
voice and  receiving  tally  then  go  for  approval  to  the 
head  of  the  department  receiving  the  goods.  They  are 
then  transmitted  to  the  commissioner  of  accounts  for 
the  preparation  of  a  warrant  for  payment. 

Avoiding  Duplicate  Payment  of  Invoices.  Various  ex- 
pedients are  adopted  by  private  corporations  to  avoid 
duplicate  payments  of  invoices  either  in  whole  or  in  part. 
The  most  customary  expedient  is  that  of  noting  quanti- 
ties received,  with  dates  of  invoices  and  a  reference  to 
the  receiving  report  number  on  the  purchasing  depart- 
ment's copy  of  the  purchase  order,  leaving  this  copy  in 
a  live  file  until  the  deliveries  have  been  completed  against 
the  order,  when  it  is  removed  to  a  permanent  file.    This 

216 


HANDLING  INVOICES  AND  PAYING  BILLS 

checking  to  avoid  duplicate  payments  is,  as  a  rule,  also 
done  in  the  auditing  department  from  this  department's 
copy  of  the  purchase  order.  In  avoiding  duplicate  pay- 
ments the  method  of  checking  quantities  received  against 
receiving  reports  has  the  advantage  that  duplicate  in- 
voices will  have  no  copy  of  the  receiving  report  with 
which  to  be  matched,  whereas  if  invoices  are  sent  to 
the  receiving  department  for  certification  of  receipt  and 
quality  this  certification  may  be  given  twice  or  more  for 
the  same  delivery. 

Perhaps  no  system  could  be  devised  for  avoiding  dup- 
licate payments  of  invoices  in  whole  or  in  part  more 
efficient  than  that  of  New  York  City.  It  is,  however, 
more  cumbersome  than  is  the  more  modern  practice  of 
private  corporations.  Invoices  must  be  accompanied  by 
the  original  copy  of  the  purchase  order,  on  which  is 
placed  the  certification  of  the  receiver  of  the  goods  that 
they  have  been  delivered,  with  any  discrepancies  noted.' 
Obviously  any  duplicate  invoice  sent  thereafter  by  the 
vendor  will  not  be  accompanied  by  an  original  copy  of 
the  purchase  order.  A  further  check  on  duplicate  pay- 
ments is  secured  by  noting  on  the  storekeeper's  copy  of 
the  purchase  order  (called  ''advice  to  the  receiver  of 
goods  ordered")  the  precise  goods  delivered  with  their 
date.  This  copy  of  the  purchase  order,  or  advice  to  the 
receiver  of  goods  ordered,  is  kept  in  a  live  file  until  de- 
liveries against  the  order  are  complete.  In  the  depart- 
mental auditing  office  on  the  auditor's  copy  of  the  pur- 
chase order  are  also  noted  the  partial  deliveries  against 
the  order,  and  the  order  is  removed  from  the  live  file 
when  an  invoice  is  received  covering  complete  deliveries 
thereon.  Therefore,  both  in  the  office  of  the  storekeeper 
who  receives  the  goods  and  in  the  auditor's  office,  there 
is  a  check  against  duplicate  payments,  in  that  all  partial 

217 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

deliveries  are  noted  on  the  face  of  the  purchase  order, 
and  when  deliveries  are  complete  the  purchase  order  is 
removed  to  a  permanent  file.  An  additional  check  lies 
in  the  fact  that  each  departmental  auditor  is  required 
to  keep  a  register  of  invoices  to  which  reference  may  be 
made  in  case  of  doubt. 

Prompt  Payment  of  Bills.  In  handling  bills  which  are 
subject  to  a  discount  for  prompt  payment,  private  cor- 
porations, as  a  rule,  adopt  a  procedure  which  contem- 
plates special  speed.  In  some  companies  invoices  sub- 
ject to  discount  for  prompt  payment  are  at  once  stamped 
with  a  large  red  stamp  which  calls  the  attention  of  the 
auditing  department  to  the  fact  that  the  final  checking 
and  vouchering  of  the  bill  must  be  hastened  in  order  to 
secure  the  discount.  In  other  companies  a  red  sticker 
serves  the  same  purpose.  Given  promptness  on  the  part 
of  the  receiving  department  in  preparing  the  report  of 
material  received  and  in  forwarding  the  copy  to  the  pur- 
chasing department  or  to  the  auditing  department  to 
match  against  the  original  invoice,  there  is  usually  no 
cause  for  delay  aside  from  delays  resulting  from  neces- 
sity for  inspection  and  test. 

In  the  majority  of  companies,  however,  delays  in  pay- 
ment due  even  to  this  cause  are  infrequent,  owing  to  the 
common  practice  of  making  prepayment  of  discount  bills 
in  advance  of  final  acceptance  of  goods  or  even  in  some 
cases  in  advance  of  their  receipt.  This  practice  is  of 
course  limited  by  all  companies  to  dealers  with  whom 
past  experience  has  been  entirely  satisfactory  in  mak- 
ing adjustments  of  unsatisfactory  or  short  deliveries. 
In  this  respect  private  companies  obviously  have  an  ad- 
vantage over  governments  in  that  they  are  free  to  limit 
competition  and  awards  to  vendors  upon  whom  they  can 

218 


HANDLING  INVOICES  AND  PAYING  BILLS 

rely  for  honesty  and  accuracy  in  deliveries  and  for  fair- 
ness in  making  necessary  adjustments  of  invoices.  The 
making  of  prepayments  to  vendors  may  be  stated  as  a 
general  practice  among  practically  all  of  our  leading 
industrial  corporations.  The  Pullman  Company  is  an 
exception  to  this  almost  general  practice  among  private 
corporations,  requiring  that  the  goods  be  received  and 
fully  checked  as  to  quality  and  quantity  before  invoices 
are  passed  for  payment.  Of  course  no  payments  are 
made  in  advance  of  the  receipt  of  a  bill  of  lading  in 
the  case  of  a  freight  shipment.  Railroads  often  require 
that  goods  must  have  reached  their  own  tracks  before 
payment  is  made. 

Probably  the  majority  of  American  cities  secure  dis- 
counts for  prompt  payment  of  bills.    Thus,  the  bid  form 

of  Dayton  states  in  the  heading  that  a  discount  of 

per  cent  will  be  allowed  for  payment  of  cash  between 
the  loth  and  15th  of  the  month  following  the  date  of 
invoice.    The  proposal  form  of  Cincinnati  states  that  an 

allowance  of  per  cent  will  be  made  for  cash  in 

days  from  date  of  invoice,  and  in  large  type  it  is 

stated  that  2  per  cent  discount  will  be  deducted  unless 
other  terms  are  stated. 

New  York  City,  however,  furnishes  a  notable  instance 
of  a  city  which  makes  no  attempt  to  secure  discounts. 
It  does  not  even  ask  dealers  to  state  their  discount  terms. 
Obviously  this  is  not  in  accordance  with  best  business 
practice  and  the  city  loses  large  amounts  thereby.  It 
cannot  be  argued  by  the  city  that  bidders  who  state  a 
discount  figure  their  base  price  sufficiently  high  to  cover 
the  discount.  This  may  be  true  in  some  cases,  but  it 
is  very  often  true  that  the  city  pays  the  same  or  higher 
rate  than  a  private  purchaser  while  losing  a  discount  for 
prompt  payment  secured  by  the  latter.    This  is  obviously 

219 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

the  case  when  Hst  prices  are  quoted.  The  New  York 
Central  Railroad  finds  that  discounts  secured  are  more 
than  sufficient  to  cover  the  entire  expense  in  salaries  and 
otherwise  of  the  purchasing  department.  There  is  no 
reason  why  New  York  City  would  not  profit  to  an  equal 
extent  were  an  effort  made  in  this  direction. 

Cities  and  other  governmental  agencies  are,  as  a  rule, 
notoriously  slow  in  the  payment  of  bills.  A  principal 
reason  for  this  slowness  is  the  necessity  for  approval  of 
invoices  or  vouchers  by  higher  administrative  officers, 
even  in  the  case  of  current  routine  purchases — a  prac- 
tice which  would  not  be  tolerated  in  a  large  industrial 
corporation  or  by  a  railroad.  Higher  administrative 
officers  are  often  too  busy  with  matters  of  policy,  or 
possibly  of  politics,  to  give  adequate  attention  to  prompt 
approval  of  bills.  Further,  they  seldom  realize  the  im- 
portance of  such  prompt  approval. 

There  is,  moreover,  in  most  city  departments  a  lack 
of  responsibility  for  securing  prompt  approval  and 
checking  of  invoices  and  their  prompt  vouchering  and 
payment.  It  is  essential  to  such  promptness  that  the 
purchasing  agent  be  made  primarily  responsible  for  this 
action.  So  far  as  concerns  securing  the  prompt  ap- 
proval of  higher  administrative  officers  on  invoices  or 
vouchers,  it  is  necessary  in  cities  with  central  purchas- 
ing departments  that  a  departmental  storekeeper  or 
some  other  executive  be  definitely  charged  with  respon- 
sibility for  bringing  these  matters  to  the  prompt  atten- 
tion of  their  superiors  and  for,  also,  bringing  to  their 
notice  the  fact  that  discounts  may  be  lost  or  competi- 
tion discouraged  by  their  slowness.  It  may  be  men- 
tioned in  this  connection  that  the  purchasing  agent  of 
the  city  of  Minneapolis,  who  without  doubt  feels  his 
responsibility  in  obtaining  prompt  payment  of  bills,  has 

220 


HANDLING  INVOICES  AND  PAYING  BILLS 

secured  the  passage  of  an  ordinance  making  it  a  mis- 
demeanor for  any  administrative  officer  or  any  one  else 
in  a  department  to  unnecessarily  delay  the  approval  of 
proper  certification  of  an  invoice  or  voucher  so  as  to 
lose  the  advantage  of  a  discount. 

Practically  all  governments  require  that  no  bills  be 
paid  until  deliveries  have  been  approved  as  to  quantities 
and  quality.  This  often  necessitates  holding  the  invoice 
awaiting  test,  which  in  some  cases  may  require  a  week 
or  more.  In  short,  governments  do  not  adopt  the  policy 
of  making  prepayments  of  invoices  to  dealers  with  whom 
delivery  experiences  have  been  satisfactory  in  the  past. 
It  is  open  to  question  whether  it  might  not  be  both  ad- 
vantageous and  safe  for  governments  to  make  prepay- 
ments to  such  satisfactory  dealers  as  might  be  approved 
by  the  auditing  department.  This  practice  would  ap- 
pear to  be  safe  beyond  question  in  the  case  of  periodical 
deliveries  against  a  government  contract  where  the  gov- 
ernment has  constantly  the  privilege  of  cancellation  and 
may  further  protect  itself  by  a  contract  bond  and  by 
provisions  for  liquidated  damages. 

A  common  cause  of  slowness  in  checking  invoices  in 
payment  of  bills  is  the  fact  that  they  are  held  in  many 
city  departments  for  the  purpose  of  posting  stores,  ex- 
pense and  general  accounts.  Thus,  in  the  department  of 
Bellevue  and  allied  hospitals  in  New  York  City,  in- 
voices may  be  delayed  in  the  auditor's  office  for  a  day  or 
more  awaiting  posting  by  the  expense  ledger  clerk. 
Obviously  the  practice  of  modern  corporations  of  pre- 
paring a  receiving  report  and  using  copies  of  this  re- 
port for  posting  accounts  eliminates  the  necessity  of 
holding  up  the  bill  for  this  purpose. 

A  further  reason  for  slowness  in  approving  and  pay- 
ing bills  in  some  cities,  notably  New  York,  arises  from 

221 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

the  necessity  of  a  check  inspection  by  the  central  audit- 
ing bureau.  In  other  words,  invoices  may  not  be  for- 
warded by  the  receiver  of  goods  to  the  departmental 
auditing  office  until  their  quality  has  been  passed  upon 
by  the  inspector  of  the  inspection  division  of  the  finance 
department.  This  may  require  their  being  held  for  sev- 
eral days  awaiting  the  appearance  of  the  inspector. 
Then  after  the  bills  accompanied  by  the  departmental 
voucher  and  the  original  copy  of  the  purchase  order 
reach  the  bureau  of  audit  of  the  finance  department, 
they  are  subjected  to  another  careful  check  against  the 
auditor's  copy  of  the  purchase  order.  The  auditing  di- 
vision has  even  exercised  in  some  instances  the  power 
to  revise  prices  on  invoices  covering  open  market  order 
purchases,  even  though  these  prices  are  in  conform- 
ance with  the  prices  on  the  original  purchase  order.  It 
is  to  be  questioned  whether  procedures  of  this  type  do 
not  in  the  long  run  cost  the  city  more  in  loss  of  com- 
petition and  in  high  prices  than  would  be  lost  through 
an  occasional  payment  for  goods  not  quite  up  to  speci- 
fication. 


APPENDICES 


APPENDIX  I 

PURCHASING  SYSTEM  OF  THE  GENERAL 
ELECTRIC  COMPANY 

The  General  Electric  Company  operates  a  principal 
factory  at  Schenectady,  New  York,  and  seven  subsidiary 
factories  in  various  parts  of  the  United  States,  as  well 
as  a  mica  mine  and  plant  in  Canada.  It  also  maintains 
branch  offices  in  all  parts  of  the  United  States  and  vari- 
ous foreign  countries. 

The  range  of  the  purchases  required  for  the  manu- 
factures of  this  company  is  exceedingly  wide  and  for 
the  most  part  highly  technical.  Materials  must  be  pur- 
chased for  each  of  its  great  range  of  articles  of  con- 
struction, and,  in  addition,  supplies,  materials  and  equip- 
ment for  the  operation  and  maintenance  of  its  factories. 
A  few  classes  of  articles  are  purchased  for  resale,  in- 
cluding inner  and  outer  globes,  transformer  oil,  sheet 
steel  and  general  supplies.  Many  articles  are  purchased 
for  customers  who  desire  the  General  Electric  Company 
to  assume  the  entire  responsibility  for  the  complete  in- 
stallation of  an  electric  plant.  These  articles  even  in- 
clude automobiles. 

ORGANIZATION 

Attached  to  the  general  offices  of  the  company,  but 
located  at  Schenectady,  is  a  central  purchasing  depart- 
ment. At  each  factory  (including  Schenectady)  is 
maintained  an  order  and  stores  department,  which  em- 

225 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

braces  also  a  stock  department.  Receiving  and  inspec- 
tion departments,  each  independent  of  the  order  and 
stores  department,  are  also  maintained  at  each  factory; 
while  a  laboratory  department  at  Schenectady  super- 
vises the  operations  of  testing  laboratories  located  at 
the  several  factories. 

The  purchasing  department,  with  a  purchasing  agent, 
who  is  designated  as  assistant  to  the  president  of  the 
company,  is  organized,  on  the  purchasing  side  proper, 
into  nine  sections,  each  in  charge  of  a  buyer,  each  sec- 
tion being  responsible  for  a  large  general  class  of  items. 
On  the  clerical  side,  under  the  supervision  of  a  chief 
clerk,  are  found  order  clerks,  purchase  record  clerks, 
price  clerks  and  invoice  clerks  (as  well  as  the  customary 
stenographic,  mailing  and  filing  sections). 

PURCHASING  PROCE^DURE: 

The  procedure  with  respect  to  purchasing  differs  ac- 
cording as  the  purchases  to  be  made  are  for  a  factory 
or  branch  house.  Since  by  far  the  greater  part  of  the 
purchases  made  are  made  for  the  factories  (the  branch 
houses  being  in  most  instances  supplied  from  the  fac- 
tories rather  than  by  purchases),  the  following  account 
of  the  purchasing  procedure  has  reference  to  the  pro- 
cedure followed  in  making  purchases  for  factories,  the 
special  features  of  the  procedure  used  in  making  pur- 
chases for  branches  being  set  forth  in  the  subsequent 
section. 

Preparation  of  Specifications.  Specifications  originate 
in  various  ways,  the  laboratory  department  sometimes 
taking  the  initiative  in  drawing  them  up,  and  the  request 
sometimes  coming  from  the  division  needing  the  goods 

226 


APPENDIX  I 

or  from  the  buyer  in  the  purchasing  department  who 
has  their  purchase  in  charge.  In  any  case  their  terms 
are  decided  upon  by  the  laboratory  department.  A 
standardizing  committee  operates  for  the  whole  com- 
pany to  standardize  materials,  finish,  etc.,  to  eliminate 
special  grades  and  varieties.  This  committee  consists 
of  department  heads  with  a  permanent  committee  head 
provided  with  a  small  staff.  All  technical  questions  are 
referred  to  the  testing  laboratory. 

Specifications  are  not  iron-clad  in  the  General  Elec- 
tric Company  to  the  extent  of'  there  being  no  authority 
which  can  dispense  with  any  classes  thereof  in  case  of 
necessity.  This  is  left  to  the  head  of  the  testing  labora- 
tory, who  makes  all  tests  of  deliveries  to  insure  com- 
pliance with  specifications.  In  time  of  necessity,  like  the 
present,  unimportant  exceptions  to  specifications  are  per- 
mitted. 

Making  Price  Agreements.  A  large  part  of  the  pur- 
chases of  the  General  Electric  Company  are  made  in 
normal  times  and  even  at  present  under  price  agree- 
ments, these  agreements  varying  in  their  terms  accord- 
ing to  market  conditions.  The  majority  of  the  price 
agreements  are  for  indefinite  quantities  and  also  for  an 
indefinite  period,  the  General  Electric  Company  being 
authorized  thereunder  to  purchase  elsewhere  if  it  sees 
fit,  and  the  dealer  likewise  being  authorized  to  termi- 
nate the  agreement  in  case  market  conditions  make  it 
desirable  for  him  to  do  so!  At  the  present  time  most  of 
the  price  agreements  are  for  short  definite  periods,  but 
with  the  same  flexibility  as  formerly  as  to  termination 
by  either  party.  Few  binding  contracts  for  definite 
quantities  are  entered  into,  especially  at  the  present  time. 
The  determination  as  to  whether  an  article  should  be 

227 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

purchased  under  a  price  agreement  for  indefinite  quan- 
tities, under  a  binding  contract  for  definite  quantities, 
or  under  special  prices  secured  from  time  to  time  is  left 
to  the  several  buyers  of  the  purchasing  department  un- 
der the  supervision  of  the  purchasing  agent.  The  basis 
for  this  determination,  as  will  later  be  stated,  is  the 
''purchase  records"  for  each  of  the  several  factories, 
these  records  showing  in  detail  precisely  how  much  of 
each  article  was  purchased  for  each  factory  and  at  which 
periods  deliveries  were  requested. 

If  the  article  be  one  ordinarily  covered  by  a  price 
agreement,  no  special  form  is  used  for  securing  prices. 
If,  however,  the  article  be  a  special  one,  a  standard  form 
of  proposal  blank  is  used,  a  special  contrary  proposal 
form  being  provided  for  articles  ordinarily  covered  by 
contract. 

Contracts  are  entered  into  in  a  great  majority  of  cases 
on  forms  drawn  to  meet  each  particular  occasion  or 
upon  the  form  provided  by  the  other  party  thereto,  no 
standard  form  of  contract  being  provided  by  the  Gen- 
eral Electric  Company.  It  is  very  seldom  that  the  com- 
pany requires  a  bond  on  a  contract  for  delivery  of  ma- 
terials and  supplies.  No  security  deposit  is  required 
with  bids.  After  contracts  have  been  completely  exe- 
cuted, they  are  referred  to  the  legal  department  for 
criticism.  If  the  legal  department  raises  questions  with 
reference  thereto,  these  are  taken  up  for  adjustment 
with  the  other  party  to  the  contract. 

In  making  selection  among  dealers,  the  buyer  has 
available  for  his  information  a  complete  file  of  all  pre- 
vious transactions,  a  price  record,  a  record  of  dealers, 
a  catalogue  library,  a  file  of  test  reports  and  a  com- 
plete record  of  purchases  of  each  distinct  class  of  ar- 

228 


APPENDIX  I 

ticles.^  In  addition  each  buyer  maintains  his  own  Ust  of 
dealers. 

When  a  price  agreement  or  contract  is  entered  into  a 
notification  is  sent  to  the  order  and  stores  departments 
of  the  several  factories,  a  special  form  being  provided 
for  this  purpose. 

Handling  of  Requisitions.  All  requisitions  for  articles 
required  in  a  factory  and  not  obtainable  from  the  stock 
department,  pass  from  the  foreman  or  other  points  of 
origin  directly  to  the  factory's  order  and  stores  depart- 
ment. ^  In  the  case  of  special  equipment  such  requisi- 
tions are  usually  referred  by  the  order  and  stores  de- 
partment to  the  foreman's  immediate  superior  for  ap- 
proval. 

Factory  orders  from  foremen  for  particular  mate- 
rials are  first  checked  against  a  shop  order  card.  This 
shop  order  card  is  a  record  of  the  authority  under  which 
the  foreman  is  operating  in  constructing  the  equipment 
for  which  he  needs  the  special  material,  and  is  made 
out  on  the  receipt  of  a  production  shop  order  from  the 
production  department,  this  order  being  a  direction  to 
a  foreman  to  build  one  or  several  particular  machines, 
articles  of  equipment,  etc. 

The  second  card  against  which  factory  orders  for 
materials  are  checked  is  the  material  card  filed  in  classes, 

^  For  a  description  of  these  records,  see  pp.  236-240. 

2  Requisitions  for  office  furniture  and  equipment  pass,  however, 
directly  to  the  central  purchasing  department,  one  copy  going  to  the 
purchasing  agent  and  the  other  copy  remaining  in  the  requisition 
book  of  the  requisitioner.  The  final  authorization  of  the  purchase  is 
made  by  the  buyer  of  the  purchasing  department  in  charge  of  this 
class  of  purchase.  The  name  of  the  dealer  with  whom  the  company 
has  a  price  agreement,  if  such  exists,  is  filled  in  on  the  purchasing 
department  copy  of  the  order,  and  the  purchasing  department  requisi- 
tion is  thereupon  made  out  in  the  chief  clerk's  office  and  mailed 
direct,  the  first  copy  going  to  the  dealer  and  the  second  remaining 
in  the  purchasing  department. 

229 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

as  in  the  purchasing  department,  alphabetically,  under 
the  name  of  the  particular  material.  This  card  provides 
columnar  headings  as  follows:  department  for  which 
article  is  received,  shop  order  number  against  which 
purchased,  the  foreman's  order  number  (i.  e.,  the  num- 
ber of  the  factory  order),  the  date,  the  quantity  or- 
dered, and  remarks.  Thus,  each  card  will  show  for  each 
material  the  quantity  ordered  by  each  foreman.  From 
these  cards  it  is  possible  to  tell  the  amounts  that  are 
usually  requisitioned  by  the  foreman  and  the  frequency 
of  his  requests,  and  if  his  requirements  on  a  factory  or- 
der are  extraordinarily  large  or  come  in  more  frequently 
than  usual,  it  is  the  function  of  the  order  and  stores  de- 
partment to  ascertain  the  reason  therefor  in  order  to 
prevent  the  purchase  of  excessive  stock.  The  order  and 
stores  department  in  order  to  check  these  requisitions 
or  factory  orders  must  of  course  be  in  the  closest  con- 
tact with  the  production  department. 

Issue  of  Purchase  Orders.  If  the  order  and  stores  de- 
partment is  unable  to  fill  the  requisition,  it  places  a  pur- 
chase order  for  the  goods  needed.  If  the  order  and 
stores  department  has  already  been  provided  by  the  pur- 
chasing department  with  a  price  agreement  or  ordering 
direction  covering  the  particular  class  of  goods  needed, 
it  may  issue  the  purchase  order  immediately  without 
reference  to  the  purchasing  department.  So,  too,  in  case 
of  emergency  or  petty  purchases,  even  though  no  order- 
ing directions  from  the  purchasing  department  are  at 
hand,  the  factory  order  and  stores  department  may  is- 
sue an  order  direct,  the  only  check  on  the  discretion  of 
the  supervisor  of  that  department  being  his  liability  to 
be  called  to  account  by  the  purchasing  department  if  he 
should  adopt  this  method  without  justification. 

230 


APPENDIX  I 

Under  ordinary  circumstances,  however,  if  no  order- 
ing directions  from  the  purchasing  department  are  at 
hand,  the  order  and  stores  department  makes  a  request 
for  such  directions  upon  the  purchasing  department  upon 
a  form  specially  provided.  In  the  purchasing  depart- 
ment this  request  is  referred  to  the  appropriate  buyer, 
who,  after  selecting  a  dealer,  places  directly  upon  the 
request  the  name  of  the  dealer  selected,  prices  and  terms 
agreed  upon,  etc.* 

At  the  same  time  notification  is  made  to  the  success- 
ful bidder.  This  notification  states  that  the  company 
accepts  the  quotation  of  the  successful  bidder,  and  quotes 
terms,  promise  of  delivery  and  the  name  of  the  factory 
to  which  the  delivery  is  to  be  made.  The  notification 
adds,  however,  ''Do  not  start  the  manufacture  of  spe- 
cial goods  or  make  shipment  of  stock  goods  until  you. 
receive  our  confirming  requisition." 

A  price  and  a  dealer  having  been  secured  either  from 
the  requisition  direction  card  or  by  special  reference  to 
the  purchasing  department,  the  name  of  the  dealer  is 
filled  in  on  the  factory  order.  Thereupon  the  factory  or- 
der goes  to  an  order  clerk  for  the  issuance  of  a  pur- 
chase order.  No  prices  are  mentioned  on  the  purchase 
order,  it  simply  directing  the  dealer  to  ship  the  stated 
goods  and  leaving  it  to  him  to  invoice  them  at  a  price 
agreed  upon  by  him  with  the  purchasing  department. 
The  order  is  made  out  in  triplicate,  the  first  copy  going 
to  the  dealer,  the  second  copy  remaining  on  file  in  the 
order  and  stores  department  and  the  third  copy  going 
to  the  purchasing  department.     In  some  cases  more 

1  In  the  Schenectady  factory  the  factory  order  and  stores  depart- 
ment, instead  of  making  out  a  request  for  ordering  directions,  for- 
wards to  the  purchasing  department  the  factory  requisition  itself.  The 
name  of  the  successful  dealer  is  placed  on  this  order,  but  the  ordering 
directions  proper  are  attached  to  it  on  a  separate  form  by  the  pur- 
chasing department. 

231 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

than  three  copies  are  made.  For  example,  if  a  blue- 
print is  mentioned  thereon  a  copy  will  go  to  the  blue- 
print department,  which  will  be  returned  from  this  de- 
partment with  a  date  showing  when  the  blue-print  was 
mailed  to  the  dealer.  Extra  copies  of  the  purchase  or- 
der are  made  out  for  whatever  division  of  the  company- 
requests  them. 

When  a  purchase  order  or  requisition  has  been  issued 
it  is  recorded  on  a  notice  to  be  returned  to  the  foreman. 
One  notice  to  a  foreman  may  cover  several  orders. 

Special  Procedure  for  Trial  Orders.  Trial  orders  for 
test  purposes  may  come  only  from  the  head  of  the  test- 
ing laboratory.  All  requests  for  such  orders  originat- 
ing elsewhere  must  receive  his  approval.  The  request 
for  a  trial  order  is  made  out  in  triplicate,  the  first  copy 
being  for  the  testing  laboratory,  the  second  copy  for  the 
purchasing  department  and  the  third  for  the  order  and 
stores  department.  After  being  approved  for  purchase 
by  the  purchasing  department,  the  original  is  sent  back 
to  the  factory  in  which  it  originated  where  a  regular 
purchase  order  is  made  out  by  the  order  and  stores  de- 
partment stamped  with  a  special  stamp  to  indicate  to 
the  dealer  that  the  order  is  for  testing  purposes  only 
and  requesting  that  he  so  plainly  mark  his  delivery. 
Notification  is  sent  to  all  concerned  in  the  factory  (i.  e., 
to  the  receiving  department,  which  must  tag  the  goods 
when  received  with  a  special  yellow  tag  headed  "Special 
for  Test,"  to  the  testing  department  and  to  the  division 
which  is  to  use  the  goods)  that  the  trial  order  has  been 
placed,  and  that  material  delivered  thereunder  must  be 
kept  carefully  separate  from  other  like  material  in  stock. 

Follow-Up.     Purchase  orders  having  been  issued,  fac- 
tory orders  go  to  the  correspondence  clerks  in  the  order 

232 


APPENDIX  I 

and  stores  department,  each  of  these  clerks  handling 
special  classes  of  materials.  Each  clerk  has  in  his  desk 
racks  for  filled  and  unfilled  factory  orders.  There  are 
separate  racks  for  dififerent  classes  of  material,  the  un- 
filled orders  being  arranged  therein  according  to  the 
number  of  the  purchase  requisition,  which  number  has 
been  transcribed  to  the  factory  order.  It  is  the  duty  of 
the  correspondence  clerk  to  keep  running  through  his 
racks  and  to  hurry  up  deliveries,  in  case  of  necessity 
writing  advance  notices  to  dealers  to  remind  them  of 
approaching  delivery  dates.  On  the  back  of  each  fac- 
tory order  provision  is  made  for  listing  all  deliveries 
against  the  order.  Correspondence  clerks  also  are 
charged  with  the  duty  of  checking  all  invoices  against 
the  original  factory  orders  to  insure  that  goods  invoiced 
are  the  goods  originally  requisitioned  by  the  foremen. 
If  a  correspondence  clerk  finds  it  necessary  to  hurry  de- 
liveries against  any  order,  information  to  this  effect  is 
stamped  on  the  face  of  the  factory  order  in  space  pro- 
vided for  the  purpose,  so  the  factory  order  becomes  a 
complete  record  of  the  entire  transaction. 

Checking  Invoices.  Invoices  are  received  by  the  order 
and  stores  department  made  out  in  duplicate  as  required 
on  the  face  of  the  purchase  order.  They  are  checked 
by  the  correspondence  clerks  against  the  factory  or- 
ders, and  then  go  to  the  price  clerks  to  check  against 
the  requisition  direction  from  the  purchasing  depart- 
ment or  against  a  special  price  card.  At  present  so 
many  articles  are  purchased  at  special  prices,  owing  to 
the  fact  that  dealers  are  loath  to  enter  into  price  agree- 
ments or  contracts,  that  few  special  price  cards  are  pre- 
pared and  invoices  are  usually  checked  against  the  exec- 
utive correspondence  from  the  purchasing  department 

233 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

informing  the  order  and  stores  department  of  the  dealer 
and  price.  If  the  price  on  the  invoice  is  found  to  be 
incorrect  on  comparing  it  with  the  requisition  direction 
or  the  special  price,  an  over-charge  claim  is  made  up/ 
Extensions  and  footings  on  invoices  are  not  checked  in 
the  order  and  stores  department  but  in  the  accounting 
department. 

From  the  price  clerks  the  original  and  duplicate  in- 
voices are  passed  on  to  the  purchasing  and  accounting 
departments,  the  original  to  the  accounting  and  the  dup- 
licate to  the  purchasing  department,"  invoices  ready  for 
passage  being  numbered  serially  and  listed  upon  a  sched- 
ule form.^ 

Inasmuch  as  purchase  orders  are  issued  by  the  or- 
der and  stores  department  of  each  factory  rather  than 
by  the  purchasing  department,  invoices  are  ordinarily 

^  This  form  is  used  also  by  the  purchasing  department  for  this 
class  of  claims,  resulting  from  its  recheck  of  the  invoices.  It  calls 
for  a  credit  memorandum  in  duplicate  or  triplicate,  or  for  the  nota- 
tion of  exceptions  in  detail  on  the  over-charge  claim  form  by  the 
dealer  in  case  the  claim  be  incorrect. 

2  On  each  original  invoice  transmitted  to  the  accounting  depart- 
ment is  a  stamp  providing  for  the  following  information:  (i)  In- 
voice number;  (2)  terms;  (3)  f .  o.  b. ;  (4)  price  correct;  (5)  ex- 
tensions correct;  (6)  goods  received;  (7)  freight  or  express  voucher 
number;  (8)  and  amount  paid.  Only  the  first  four  items  are  filled  in 
by  the  order  and  stores  department,  the  checking  of  the  extensions 
being  left  to  the  accounting  department,  the  certification  as  to  the 
receipt  of  the  goods  and  the  freight  or  express  voucher  number  being 
inserted  by  the  receiving  department,  and  the  final  amount  paid  being 
inserted  by  the  accounting  department. 

On  all  duplicate  invoices  sent  to  the  purchasing  department  is  a 
stamp  entitled  "passage  record"  w^ith  space  for  the  following  informa- 
tion :  Order  checked,  indexed,  purchase  recorded,  price  correct,  and 
Schenectady  works  invoice  number.  The  invoice  number  only  is 
inserted  on  these  duplicate  invoices  by  the  order  and  stores  depart- 
ment, the  rest  of  the  information  being  inserted  by  the  purchasing 
department. 

^  Three  copies  of  this  invoice  schedule  form  are  prepared,  one  to 
accompany  the  daily  batch  of  invoices  going  to  the  accounting  de- 
partment, the  second  to  accompany  the  duplicate  invoices  going  to 
the  purchasing  department  and  the  third  copy  to  remain  on  file  in  the 
order  and  stores  department. 

234 


APPENDIX  I 

checked  as  to  price  and  quantity  in  these  several  order 
and  stores  departments.  Copies  of  the  invoices  accom- 
panied by  a  schedule,  however,  are  sent  to  the  purchas- 
ing department  by  each  order  and  stores  department, 
from  that  of  the  Schenectady  factory  daily,  from  those 
of  the  other  factories  once  a  week. 

Purchases  of  Special  Items  for  Branches.  With  respect 
to  the  regular  lines  of  the  company,  the  several  branches 
receive  their  stocks  from  the  several  factories,  and  no 
purchases  on  their  account  are,  therefore,  necessary. 
As  previously  stated,  however,  the  company  often,  at 
the  request  of  a  customer,  buys  special  articles  in  order 
to  make  a  complete  installation  or  as  an  accommodation. 
Orders  for  these  special  articles  are  made  out  by  the 
branch  offices  upon  the  same  order  form  upon  which  it 
would  order  supplies  or  equipment  manufactured  by  the 
company. 

The  procedure  in  further  handling  this  order  depends 
upon  whether,  as  has  been  done  in  the  case  of  some 
special  articles  not  manufactured  by  the  company,  the 
purchasing  department  has  issued  requisition  directions 
to  the  branch  offices  in  the  same  way  as  it  issues  such 
directions  with  respect  to  production  materials  for  the 
several  factory  order  and  stores  departments.  In  such 
cases  the  branch  houses,  like  the  factory  order  and  stores 
departments,  issue  a  purchase  order  to  the  dealer,  send- 
ing a  copy  of  the  order  to  the  purchasing  agent. 

In  case  the  branch  office  has  no  requisition  directions 
covering  the  article  to  be  purchased,  it  sends  the  pur- 
chasing order  in  duplicate  to  the  purchasing  depart- 
ment, which  thereupon  awards  the  order  and  sends  the 
original  copy  to  the  dealer  with  a  direction  requesting 
him  to  acknowledge  the  receipt  of  this  purchase  order 

235 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

direct  to  the  branch  office,  and  to  ship  all  goods  called 
for  in  accordance  with  the  shipping  and  billing  direc- 
tions specified  on  the  order.  At  the  same  time  a  copy 
of  this  notification  to  the  dealer  is  returned  to  the  branch 
office  and  to  the  general  office  accounting  department. 
Notification  of  terms  secured  on  purchases  of  special 
articles  for  branch  offices  is  sent  by  the  purchasing  de- 
partment to  the  accounting  department  on  a  separate 
form. 

PURCHASING  RECORDS  AND  REPORTS 

"Deal"  File.  When  a  deal  has  been  completed  by  a 
buyer  (and  there  are  75  to  100  of  these  per  day),  the 
papers  pertaining  thereto  pass  from  the  buyer  to  the 
chief  clerk's  office  in  the  purchasing  department  for 
filing.  These  papers,  as  previously  indicated,  are  as 
follows:  (i)  A  request  for  ordering  directions  (if  it  be 
an  outside  factory  that  requires  the  goods),  there  being 
written  thereon,  as  upon  the  original  copy,  which  re- 
turned to  the  factory,  the  name  of  the  successful  bidder 
and  his  price  and  terms;  (2)  the  duplicate  copy  of  the 
request  for  bids  with  the  names  of  the  firms  thereon  to 
which  these  requests  were  sent  by  the  buyer;  (3)  the 
duplicate  copy  of  the  notification  to  the  successful 
bidder. 

There  are  also  filed  with  the  rest  of  the  papers  any 
other  correspondence  which  the  buyer  may  have  had 
pertaining  to  the  deal,  as,  for  example,  correspondence 
with  the  testing  laboratory  as  to  specifications. 

The  entry  clerk  makes  out  a  purchasing  department 
file  folder  for  each  deal  with*  the  date  of  entering,  the 
subject  matter  (material),  the  name  of  the  firm  (what 
factory  or  branch  office),  the  test  number  (if  there 
be  such),  the  number    (purchasing  department  num- 

236 


APPENDIX  I 

ber  of  the  deal),  these  being  numbered  serially  with 
printed  numbers,  to  file  (date),  indexed.  Then  the  en- 
try clerk  enters  the  prices  secured  in  the  deal  on  price 
cards.  The  folders  are  filed  by  serial  number  and  are 
indexed  both  by  the  material  involved  and  the  name  of 
the  firm. 

Contract  File.  Contracts  are  filed  in  a  special  contract 
file  and  not  in  the  regular  "deal"  file.  Any  correspond- 
ence from  the  legal  department  with  reference  to  the 
terms  of  the  contract  is,  however,  filed  with  the  contract 
in  the  contract  folder.  Contract  folders  are  filed  under 
the  name  of  the  material  contracted  for,  the  primary 
classification  being  the  several  large  classes  used  in  de- 
fining the  provinces  of  the  several  buyers. 

Dealers'  Cards.  In  a  special  file  are  kept  cards  which 
show  under  the  names  of  dealers  their  terms  as  to  pay- 
ment and  delivery  for  articles  which  they  are  in  a  posi- 
tion to  furnish.  Reference  is  made  on  this  record  to 
the  "deal"  file  folders  containing  the  firms'  quotations. 
This  record  serves  as  a  ready  reference  by  the  buyers 
as  to  conditions  usually  required  by  dealers. 

In  the  ofifice  of  each  of  the  eight  buyers  is  also  kept 
a  "mailing  list"  containing  for  each  article  the  firms 
from  whom  bids  are  to  be  sought.  Space  is  provided 
to  show  the  name  of  the  factory  requiring  the  article, 
in  some  cases  a  diiTerent  set  of  dealers  being  listed  for 
certain  factories  than  for  others.  These  cards  are  filed 
alphabetically  under  their  proper  classes  as  are  the  price 
cards  in  the  ofhce  of  the  chief  clerk. 

Price  Cards.  Price  cards  show  for  each  article  the  firms 
with  which  deals  were  closed,  the  date  the  price  was  se- 

237 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

cured,  quantity,  the  price,  where  to  be  deUvered,  the 
terxns,  and  the  authority  (i.  e.,  the  reference  to  the  pur- 
chasing department  file  folder  number).  On  the  lower 
third  of  each  card  space  is  provided  under  columnar 
headings  for  reference  to  ordering  directions  sent  to  the 
several  factories  and  offices  of  the  company,  the  initials 
of  these  several  factories  and  offices  serving  to  show  to 
which  factories  those  directions  were  sent. 

Price  cards  are  filed  under  several  classes,  in  general 
following  the  classification  previously  stated  for  the 
division  of  responsibility  between  the  several  buyers  of 
the  purchasing  department. 

Great  care  must  be  taken  by  the  entry  clerks  to  enter 
prices  on  the  correct  cards.  It  should  be  stated  at  this 
point  that  the  General  Electric  Company  has  probably 
less  difficulty  with  inaccuracy  and  incompleteness  of  de- 
scription than  most  companies  of  extensive  purchases 
by  reason  of  the  fact  that  all  requisitions  must  pass 
through  an  order  and  stores  department  which  is  respon- 
sible for  their  completeness.  In  the  case  of  entries  re- 
quiring long  detailed  descriptions  and  remarks  as  to 
terms,  etc.,  a  supplementary  record  is  placed  immediately 
following  the  regular  price  card. 

Test  Reports.  Copies  of  all  test  reports  are  kept  in  the 
purchasing  department  in  folders  provided  for  the  pur- 
pose and  are  filed  serially  under  the  test  report  num- 
ber. Each  folder  contains  the  name  of  the  material 
tested,  by  what  dealer  furnished,  by  what  factory  re- 
ported on,  the  date  of  report  and  space  for  remarks. 
In  case  the  test  report  papers  and  correspondence  are 
not  bulky  they  are  all  filed  in  the  test  report  file  folder. 
In  case  they  are  bulky,  the  test  report  file  folder  con- 
tains only  the  test  report,  the  rest  of  the  papers  being 

238 


APPENDIX  I 

filed  in  the  regular  "deal"  file.  In  such  cases  cross  ref- 
erences are  placed  on  both  folders.  The  file  of  test  re- 
ports is  indexed  in  three  ways — first,  under  the  number 
of  the  test  report;  second?  under  the  name  of  the  firm 
from  whom  the  goods  were  purchased;  and,  third,  un- 
der the  name  of  the  material  tested.  With  this  complete 
system  of  filing  and  indexing  test  reports,  complete  in- 
formation of  tests  is  available  to  each  buyer  with  refer- 
ence to  every  article  coming  under  his  authority. 

Factory  Purchase  Record.  A  purchase  record  is  kept 
for  each  factory.  The  form  used  is  a  loose  leaf  book,  a 
separate  leaf  or  part  of  a  leaf  being  used  for  each  item 
of  purchase  and  arranged  by  classes  as  are  the  price 
cards,  etc.  This  record  is  posted  in  detail  from  the  in- 
voices, and  shows  under  each  invoice  number  the  quan- 
tity and  total  cost  of  purchases  for  each  article.  The 
cost  is  the  net  cost  and  does  not  include  discounts  for 
cash.  Credits  are  entered  in  the  purchase  record  in  red 
ink. 

Reports  on  Factory  Purchases.  At  the  end  of  each 
month  there  is  made  out  to  cover  the  purchases  of  each 
factory  a  monthly  report  showing  the  purchase  of  most 
important  items.  This  summary  shows  the  quantity  and 
total  cost  of  each  item  for  the  month  reported  upon, 
the  average  price  for  that  month,  and  the  total  quan- 
tity, total  cost,  and  average  price  for  the  entire  year  to 
date.  It  also  shows  the  average  price  and  the  total  cost 
of  each  material  for  the  last  preceding  fiscal  year,  and 
the  average  price  and  total  cost  of  each  material  for  the 
next  to  the  last  preceding  fiscal  year.  Columns  are  also 
provided  to  show  the  percentage  of  advance  or  decrease 
of  the  last  preceding  year  over  the  next  to  the  last  pre- 

239 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

ceding  year,  and  the  percentage  of  increase  in  aver- 
age price  for  the  current  year  to  date  over  the  average 
price  for  the  last  preceding  year.  This  monthly  report 
is  sent  to  some  of  the  officials  of  the  company,  and  also 
to  each  works'  manager  and  serves  with  them  to  indi- 
cate price  fluctuations  on  the  company's  most  important 
items  of  purchase. 

Monthly  there  is  prepared  from  special  reports  re- 
ceived from  each  factory  a  summary  report  showing 
for  each  its  exact  status  as  to  copper,  pig  iron  and  sheet 
steel.  This  summary  report  shows  for  casting  copper 
and  for  each  kind  of  pig  iron  and  sheet  steel  the  amount 
on  hand,  the  amount  due  on  contract,  the  total  on  hand 
and  due  on  contract,  the  average  cost,  the  current  price, 
the  last  price  paid,  the  lowest  price  paid  in  two  years, 
and  the  period  that  it  is  estimated  the  total  on  hand  and 
due  on  contract  will  last.  This  report  is  sent  to  the 
more  important  officials  of  the  company  and  works'  man- 
agers. 

A  special  report  form  is  used  to  inform  the  several 
buyers,  on  request,  as  to  particular  materials  during 
a  designated  period,  the  quantity,  cost  and  average  price 
for  delivery  of  the  material  in  question  to  each  of  the 
company's  works. 


APPENDIX  2 

PURCHASING  SYSTEM  OF  THE  NEW  YORK 
CENTRAL  RAILROAD,  EASTERN  DIVISION 

There  are  two  divisions  of  the  New  York  Central 
Railroad,  first,  Buffalo  and  east;  second,  west  of  Buf- 
falo. The  purchasing  system  herein  described  is  that 
for  the  eastern  division,  that  of  the  western  division 
being  substantially  the  same. 

The  New  York  Central  Railroad  purchases — 

1.  Rolling  stock  and  other  major  equipment. 

2.  Materials  for  construction  of  roadbeds,  buildings, 
bridges,  etc. 

3.  Equipment   and   materials    for   repair   of   rolling 
stock,  etc. 

4.  General  plant  supplies  for  the  operation  and  main- 
tenance of  the  rolling  stock,  buildings,  roadbed,  etc. 

5.  Dining  car  supplies. 

ORGANIZATION 

The  purchase  of  coal,  rails  and  major  equipment,  and 
of  dining  car  supplies,  other  than  perishable  foods,  is 
not  handled  by  the  organization  herein  described,  but 
by  the  office  of  the  general  purchasing  agent  for  all  the 
New  York  Central  lines,  which  also  purchases  these 
items  for  all  the  other  railroads  in  those  lines. 

The  general  purchasing  agent  for  the  New  York 
Central  lines  also  exercises  a  general  supervision  over 

241 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

all  the  individual  purchasing  departments  maintained 
by  the  several  railroads  comprising  those  lines,  includ- 
ing the  purchasing  department  of  the  New  York  Central 
Railroad,  Eastern  Division,  herein  described.  That  pur- 
chasing department  is,  moreover,  under  the  supervision 
of  the  operating  vice-president  of  the  railroad. 

With  the  exceptions  noted,  no  purchases  are  made 
for  any  department  of  the  Xew  York  Central  Railroad 
except  through  the  office  of  the  purchasing  agent. 
This  office  also  is  charged  with  the  sale  of  scrap  and 
condemned  and  obsolete  materials,  etc.  At  the  head  of 
the  department  is  the  purchasing  agent  who  has  several 
general  assistants.  Special  sections  exist  for  the  han- 
dling of  lumber,  of  stationery  and  of  old  material.  On 
the  clerical  side  there  are  sections  for  requisitions,  or- 
ders, follow-up  (called  here  *'urger"),  bills,  vouchers 
and  files. 

An  independent  department  of  inspection  exists  and 
the  several  storehouses  are  also  independent  of  the  pur- 
chasing agent. 

PURCHASING  PROCEDURE 

Preparation  of  Specifications.  Standard  specifications 
for  materials  of  construction  and  maintenance  are  pre- 
pared by  the  mechanical  or  engineering  departments. 
Only  on  minor  articles  does  the  office  of  the  purchasing 
agent  prepare  its  own  specifications.  The  office  of  the 
purchasing  agent  is,  however,  consulted  in  regard  to 
new  specifications  for  articles  to  be  purchased  through 
his  department  before  these  specifications  are  adopted, 
to  obtain  his  approval  from  a  purchasing  standpoint. 

Standard  specifications  are  largely  used  on  the  New 
York  Central  Railroad,  this  company  having  specifica- 

242 


APPENDIX  2 

tions  for  all  items  of  large  magnitude.  These  specifi- 
cations are  the  development  of  a  number  of  years  of 
experience.  As  changes  in  conditions  or  new  develop- 
ments make  alteration  in  these  specifications  desirable, 
or  when  it  is  deemed  advisable  to  add  additional  items, 
the  purchasing  department  makes  suggestions  to  the 
mechanical  or  engineering  departments  accordingly. 

Price  Agreements  and  Contracts.  The  great  bulk  of  the 
articles  purchased  are  covered  by  price  agreements  or 
contracts  arranged  in  advance.  These  contracts  are 
awarded  by  the  purchasing  department  from  time  to 
time,  dependent  upon  market  conditions. 

Price  agreements  are  either  for  a  definite  quantity  or 
for  not  over  a  definite  quantity.  At  the  present  time  a 
large  number  of  articles,  purchased  to  the  amount  of 
$500  within  a  period  of  six  months,  are  purchased  un- 
der price  agreements.  This  is  due  to  advancing  mar- 
ket conditions.  If  the  market  should  change  and  start 
to  go  down,  the  practice  of  buying  ahead  under  price 
agreement  to  such  a  large  extent  would  be  discontinued 
and  purchases  made  at  the  market. 

Competition  in  Securing  Prices.  There  exists  a 
standing  rule  of  the  department  which  requires  that 
competition  must  be  secured  on  all  articles  and  that  no 
price  over  three  months  old  may  be  used.  Pursuant  to 
this  rule,  several  bids  are  secured  on  every  purchase,  al- 
though former  prices,  if  deemed  to  be  still  satisfactory, 
are  very  largely  used.  These  former  prices,  however, 
are  all  competitive. 

There  is  no  public  advertisement  of  an  invitation  for 
bids.  Card  lists  of  dealers  are  maintained  under  the 
name  of  the  article  required  and  under  the  name  of  the 
dealers.     If  prices  are  to  be  secured  the  standard  form 

243 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

for  this  purpose,  called  "price  inquiry,"  is  mailed  in  sin- 
gle copy  to  the  dealers  selected.  This  inquiry  blank  is 
in  copying  ink  to  enable  the  dealer  to  make  a  copy  be- 
fore submitting  his  prices  thereon.  With  the  inquiry 
blank  is  a  sealed  proposal  envelope.  Directions  are 
given  on  the  blank  as  to  when  bids  will  be  opened.^ 

As  a  usual  thing  only  one  class  of  articles  is  placed 
on  an  inquiry  blank  in  order  that  bids  may  be  secured 
direct  from  manufacturers  or  large  special  wholesalers. 
Articles  intended  for  delivery  to  widely  different  points 
are  not  usually  consolidated,  except  in  the  case  of  a  few 
articles.  For  example,  metals  and  linseed  oil  are  pur- 
chased in  bulk  on  consolidated  price  inquiries.  This 
is  a  matter  for  the  purchasing  agent  to  decide.  He  de- 
termines what  articles  shall  be  purchased  on  price  agree- 
ments and  the  period  thereof,  what  articles  shall  be  pur- 
chased on  consolidated  price  inquiries  and  what  articles 
shall  be  purchased  as  requisitioned  on  special  inquiries. 

Whenever  circumstances  require  it,  bids  in  the  alter- 
nate are  requested  covering  different  delivery  conditions 

^  The  "price  inquiry"  blank  contains  the  following  directions  to 
bidders : 

Price  Inquiry — This  is  not  an  Order 

Please  furnish  your  lowest  quotation  on  this  blank  for  the  material 
specified  below  to  be  delivered  at  nearest  junction  of  the  N.  Y.  C. 
R.  R.  Co.,  with  no  charge  for  package  or  cartage. 

If  order  is  given,  the  N.  Y.  C.  R.  R.  Co.,  at  its  option,  may  order 
the  material  to  be  shipped  to  its  junction  point  or  to  a  point  of 
destination  on  its  rails  beyond  its  junction  point.  In  all  cases  the 
shipment  should  be  forwarded  with  freight  charges  collect.  The 
N.  Y.  C.  R.  R.  Co.  will  pay  all  freight  charges  from  shipping  point 
to  destination,  and  will  deduct  from  the  delivered  price  an  amount 
equal  to  the  local  freight  rate  from  the  shipping  point  to  its  junction 
point. 

In  all  cases  the  title  to  the  property  is  to  remain  in  the  vendor  until 
it  arrives  on  the  rails  of  the  N.  Y.  C.  R.  R.  Co.,  at  its  junction 
point. 

All  material  is  subject  to  this  company's  inspection  and  acceptance 
at  destination. 

This  blank  to  receive  consideration  should  be  returned  to  this  office 

sealed  in  attached  envelope  before  noon  

244 


APPENDIX  2 

or  specifications  between  which  the  railroad  is  unable 
to  decide  until  prices  have  been  submitted. 

Only  in  case  of  emergency  are  articles  purchased  by 
informal  shopping,  and  in  such  cases  purchases  are 
always  followed  up  by  the  regular  purchase  orders. 

Awards.  Bids  are  not  opened  in  public  nor  are  the 
bid  prices  exposed  to  public  inspection.  Prices  bid  are 
tabulated  on  a  standard  tabulation  sheet  for  submission 
to  the  purchasing  agent  and  for  a  permanent  record  in 
the  purchasing  agent's  office  as  evidence  that  competi- 
tion must  be  secured. 

Award  is  usually  made  to  the  low  bidder,  and  it  must 
be  so  made  unless  a  satisfactory  reason  is  given  for 
accepting  a  higher  bidder.  Decision  is  made  in  small 
cases,  involving  less  than  $250,  by  the  division  of  the 
office  having  the  material  in  question  in  charge.  Larger 
questions  are  submitted  to  the  executives,  the  purchas- 
ing agent  and  the  assistants  to  the  purchasing  agent. 

Form  of  Price  Agreements.  The  standard  form  of 
price  agreement  of  the  New  York  Central  Railroad  is 
very  simple.  It  preserves  the  right  to  cancel  the  con- 
tract in  the  event  of  unsatisfactory  service  or  material. 
It  further  stipulates  that  if  the  dealer  shall  quote  lower 
prices  than  those  indicated  in  the  agreement,  or  if  the 
general  market  should  decline  during  the  term  of  the 
agreement,  the  price  to  the  railroad  will  be  reduced  ac- 
cordingly while  such  lower  prices  shall  be  in  effect. 

Execution  of  Agreements  and  Contracts.  As  before 
stated,  price  agreements  are  usually  on  standard  form 
of  the  railroad  company.  The  successful  bidder  is 
notified  by  sending  him  a  copy  of  the  price  agreement 
which  with  his  acknowledgment  constitutes  the  contract. 
For  the  railroad,  the  copy  sent  to  the  dealer  is  signed 
by  the  purchasing  agent,  for  the  file  copy  of  the  rail- 

245 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

road  there  is  no  signature.  For  more  formal  contracts 
the  signature  of  higher  officials  of  the  company  may- 
be required. 

Handling  Requisitions.  Everything  purchased  by  the 
railroad  must  be  purchased  on  a  requisition.  Emer- 
gency requisitions  are  confirmed  by  formal  requisitions.^ 

All  requisitions  from  the  several  shops,  etc.,  are  ad- 
dressed to  the  purchasing  agent  and  come  to  him 
through  the  general  storekeeper  at  West  Albany,  in  or- 
der to  give  that  official  who  maintains  the  stock  records 
an  opportunity  to  transfer  surplus  stock  from  one  shop 
to  another. 

Several  classes  of  articles  are  usually  included  in  the 
same  requisition,  especially  from  the  shops. 

Requisitions  are  made  out  in  duplicate  and  come 
through  the  purchasing  agent  in  single  copies. 

Requisitions  from  shops  covering  materials  and  sup- 
plies for  the  maintenance  and  operation  of  rolling  stock 
are  required  to  come  in  on  schedule,  five  ec|ual  parts 
during  a  month.  Requisitions  from  all  other  divisions 
of  the  railroad  come  in  one  each  month. 

Approval  of  Requisitions.  Who  is  empowered  to 
approve  purchase  requisitions  is  regulated  by  the  gen- 
eral manager,  so  far  as  the  operating  department  is 

^  The  form  of  the  requisition  is  in  outline  as  follows :  Space  is  pro- 
vided for  the  requisition  number  of  the  department  ordering. 
Columnar  headings  are  provided  for  (i)  the  average  monthly  con- 
sumption based  on  past  two  months;  (2)  amount  due  (meaning  the 
amount  already  on  a  purchase  requisition  but  not  yet  delivered)  ; 
(3)  the  amount  on  hand;  (4)  the  amount  ordered  (which  is  the 
amount  included  in  the  requisition)  ;  (5)  articles  required,  sizes,  etc.; 
(6)  required  for  (a  brief  statement  of  use  to  serve  as  a  guide  to  the 
officials  approving  the  requisition  and  also  sometimes  as  a  guide  to 
the  purchasing  agent  as  to  the  nature  of  the  articles  required)  ;  (7) 
ordered  from  (this  column  to  be  filled  out  in  the  office  of  the  pur- 
chasing agent)  ;  (8)  estimated  cost  (this  column  to  be  filled  out  by 
the  requisitioner). 

246 


APPENDIX  2 

concerned,  and  by  the  heads  of  the  other  departments 
of  the  railroad.  The  purchasing  department  has  on  file 
letters  of  instruction  from  the  head  of  each  department 
ordering  material  designating  whose  approval  shall  be 
accepted,  but  on  all  large  items  the  head  of  the  depart- 
ment approves  requisitions  personally.  There  are 
usually  three  or  four  approvals  on  a  requisition,  all  of 
them  internal  to  the  department  involved. 

On  passing  through  the  hands  of  the  general  store- 
keeper at  West  Albany,  requisitions  are  initialed  by  him 
and  a  rubber  stamp  placed  against  each  item  to  be  pur- 
chased, "cannot  be  supplied  from  stock."  He  may  of 
course  revise  quantities  in  the  requisition. 

On  reaching  the  office  of  the  purchasing  agent  a  short 
memorandum  slip  is  attached  to  the  requisition,  con- 
taining space  for  recording  its  progress  through  the  of- 
fice of  the  purchasing  agent.  The  requisitions  go  to 
a  committee  on  requisitions,  consisting  of  the  general 
manager,  as  chairman,  the  purchasing  agent,  superin- 
tendent of  motive  power,  superintendent  of  rolling 
stock,  engineer  of  maintenance  of  way,  the  auditor  of 
revenue  and  the  general  storekeeper,  as  secretary.  This 
committee  is  charged  with  the  final  responsibility  for 
authorizing  the  purchase  of  all  material,  and  its  ap- 
proval or  revision  must  be  obtained  before  purchases  are 
made.  Finally,  the  purchasing  agent  may  further  re- 
vise requisitions  as  to  quantity  or  otherwise  because  of 
special  market  conditions. 

Procedure  in  Office  of  Purchasing  Agent.  After  re- 
ceiving the  personal  inspection  of  the  purchasing  agent 
and  his  notations  as  to  disposition,  the  requisitions  are 
registered  ^  and  are  forwarded  to  the  division  of  the 

^  The  register  shows  the  name  of  the  consignee,  the  date  of  the 
requisition,  the  number  of  pages  of  the  requisition,  the  departmental 
requisition  number  and  the  purchasing  agent's  requisition  number. 

247 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

purchasing  agent's  office  having  in  charge  the  purchase 
of  the  class  of  goods  requisitioned,  for  example,  to  the 
lumber  division  or  to  the  stationery  division,  or  to  the 
general  requisition  division. 

On  reaching  the  division  of  the  purchasing  agent's 
office  in  charge  of  the  purchase  of  the  materials  requi- 
sitioned, requisitions  are  marked,  under  the  columnar 
head  provided  therefor,  with  the  name  of  the  firm  from 
whom  the  goods  are  to  be  ordered.  If  the  articles  are 
under  contract,  or  if  the  department  desires  to  take  ad- 
vantage of  a  price  previously  given  on  a  specific  pur- 
chase, this  price  is  inserted.  If  no  price  exists  and  it 
is  necessary  to  secure  special  competition,  inquiry  blanks 
are  sent  out  to  dealers  selected.  After  prices  have  been 
determined,  the  requisitions,  with  the  names  of  the  deal- 
ers completely  filled  in  and  price  to  be  paid  for  the  ma- 
terial, are  sent  on  to  the  order  department  where  pur- 
chase orders  are  prepared. 

Issue  of  Purchase  Orders.  Purchase  orders  are  made 
out  by  the  order  department  from  requisitions  properly 
marked  as  to  the  dealer,  by  the  requisition  department 
or  the  lumber  and  stationery  departments.  After  the 
items  on  the  requisition  have  been  drawn  off  on  a  pur- 
chase order,  they  are  checked  back  for  accuracy.  When 
orders  are  issued  against  a  price  agreement,  it  is  the 
usual  practice  to  include  no  price,  leaving  it  to  the  dealer 
to  submit  the  price  in  his  invoice,  which  is  then  checked 
against  the  agreement.  This  practice  is  considered  bet- 
ter than  to  include  the  price  inasmuch  as  it  avoids  risk 
of  enabling  the  dealer  to  take  advantage  of  a  mistake 
in  price.  Purchase  orders  after  being  checked  are 
looked  over  by  the  purchasing  agent  or  assistant  pur- 
chasing agent,  or,  in  the  absence  of  these,  by  the  chief 

248 


APPENDIX  2 

requisition  clerk,  and  are  signed  by  rubber  stamp  in  the 
name  of  the  purchasing  agent.  No  acknowledgment  of 
the  purchase  order  is  required  from  the  dealer.  No  at- 
tempt is  made  to  secure  from  the  auditor,  before  the  is- 
suance of  the  purchase  order,  any  statement  as  to  the 
existence  of  funds  to  cover  the  order. 

Purchase  orders  are  issued  always  in,  at  least,  quad- 
ruplicate. The  original  goes  to  the  dealer  and  contains 
the  requisition  number  and  the  order  number  with  in- 
structions to  ship  the  required  goods;  the  second  copy 
is  filed  alphabetically,  in  loose-leaf  binders,  under  the 
firm  name;  the  third  copy  is  an  office  record  and  is  filed 
numerically  as  to  order  number ;  the  fourth  copy  is  sent 
to  the  consignee,  for  example,  to  the  repair  shop  re- 
ceiving the  goods  as  information  that  material  on  his 
requisition  has  been  ordered  and  informs  him  from 
whom  it  may  be  expected.  In  cases  where  material  is 
bought  under  a  specification  and  inspection  is  necessary 
to  insure  compliance  with  the  specification,  an  additional 
copy  of  the  purchase  order  is  sent  to  the  man  who  is  to 
make  the  inspection.  Only  the  first  and  second  copies 
are  written  on  printed  forms,  all  additional  copies  being 
written  on  blank  paper.  No  distinctive  form  for  orders 
under  contracts  is  provided,  nor  for  orders  for  partial 
deliveries. 

PoUow-Up.  When  a  consignee  receives  a  copy  of  the 
purchase  order,  if  he  is  in  a  hurry  for  the  goods  he 
sends  a  "delivery  inquiry"  to  the  dealer  asking  when 
the  material  listed  thereon  will  be  shipped  and  full  in- 
formation as  to  car  numbers,  etc.  The  delivery  inquiry 
is  made  out  in  duplicate  and  one  copy  is  sent  to  the  of- 
fice of  the  purchasing  agent,  who  thereupon  merely  en- 
ters on  the  back  of  the  ofiice  copy  of  the  purchase  order 

249 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

a  statement  that  the  order  has  been  "hurried,"  but  takes 
no  further  action  unless  further  requested  by  the  con- 
signee. Delivery  inquiries  are  sent  most  often  by  the 
consignees  after  the  date  when  delivery  was  to  be  ex- 
pected rather  than  before. 

When  the  purchasing  agent  receives  from  dealers  re- 
ports as  to  when  shipments  will  be  made,  he  sends  such 
reports  on  to  the  consignees.  If  special  action  is  re- 
quested by  the  consignee  of  the  purchasing  agent,  this 
duty  is  assigned  to  the  urger  department.  The  urger 
department  is  in  charge  of  a  special  agent  who  makes 
frequent  trips  to  the  manufacturer's  plants  to  expedite 
delivery  of  material  which  is  badly  needed. 

All  follow-up  questions  involving  traffic  problems, 
such  as  the  loss  of  a  car  in  transit,  are  handled  by  the 
traffic  division  of  the  railroad. 

Receiving  Goods.  In  each  department  receiving  goods, 
decision  is  made  by  such  department  as  to  who  shall 
sign  the  receipts  on  freight  bills  and  on  invoices.  Usu- 
ally, however,  all  goods  to  a  shop  are  received  through 
the  shop  stores.  Responsibility  for  receiving  goods  is 
centralized  in  the  heads  of  the  different  departments, 
who  designate  subordinates  to  approve  for  them  bills 
in  payment  for  such  goods. 

Inspection  and  Test.  The  inspection  of  material  is  un- 
der the  jurisdiction  of  several  experts,  depending  upon 
the  kind  of  material  involved.  On  rails,  ties,  struc- 
tural steel,  etc.,  a  consulting  engineer  is  employed  to 
supervise  the  inspection  and  to  develop  new  analyses 
for  these  materials  which  will  improve  their  efficiency. 
The  inspection  of  general  lines  of  materials,  where  a 
chemical  analysis  is  required,  is  handled  by  the  chief 

250  J 


APPENDIX  2 

chemist  and  engineer  of  tests.  Traveling  inspectors  are 
employed  to  make  physical  inspection  at  the  plants  of 
the  manufacturers  covering  castings  and  other  bulky 
articles  which  it  is  not  practicable  to  handle  at  the  lab- 
oratory. 

The  company  maintains  a  very  complete  inspection 
system,  and  no  material  is  accepted  until  it  has  received 
some  satisfactory  inspection.  On  small  items  where  the 
amount  involved  is  very  small,  the  consignee  or  user  of 
the  material  is  allowed  to  make  the  inspection.  In  a 
number  of  cases,  the  purchasing  department  also  has 
samples  sent  to  it,  in  order  that  it  may  verify  the  qual- 
ity of  material  received.  Outside  testing  bureaus  are 
sometimes  employed. 

Handling  Invoices  and  Paying  Bills.  Shippers  are  re- 
quired to  send  in  their  bills  in  quintuplicate  on  New 
York  Central  blanks.  These  blanks  are  supplied  in 
quantity  to  dealers  regularly  furnishing  goods  to  the 
railroad,  but  ordinarily  they  accompany  every  order. 
Dealers  must  return  all  five  copies  to  the  purchasing 
agent  with  the  bill  of  lading  attached. 

Immediately  upon  the  quintuplicate  bill  being  received 
in  the  purchasing  agent's  office,  the  fifth  copy  is  sent 
to  the  consignee  as  a  shipping  memorandum;  the  other 
copies  (except  the  fourth,  which  is  intended  merely  to 
be  sent  to  the  auditor  of  freight  accounts  as  a  basis  for 
freight  adjustments  between  other  lines  and  the  New 
York  Central)  are  checked  by  a  bill  clerk  against  the 
purchasing  agent's  copy  of  the  purchase  order  in  order 
to  secure  accuracy  of  quantity  and  of  unit  price.  Be- 
fore leaving  the  office  also  they  are  stamped  with  the 
date  of  receipt.  If  a  discrepancy  appears  between  the 
invoice  and  the  purchasing  order  as  to  prices  and  quan- 

251 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

titles,  the  bill  is  usually  returned  to  the  shippers  for 
correction. 

After  being  checked  by  the  bill  clerk,  the  first  and 
second  copies  are  sent  to  the  consignee,  who  certifies  on 
the  first  copy  that  the  above  described  material  has  been 
received,  with  the  date  of  receipt.  Determination  as 
to  who  shall  sign  this  certificate  is  made  by  the  depart- 
ment receiving  the  goods.  The  original  copy  is  then 
sent  back  to  the  office  of  the  purchasing  agent,  and  the 
second  copy  is  retained  by  the  consignee.  The  third 
copy  remains  as  a  permanent  record  in  the  office  of  the 
purchasing  agent. 

The  original,  after  being  inspected  and  recorded  in 
the  office  of  the  purchasing  agent,  is  used  as  the  basis  for 
the  preparation  of  a  voucher  and  is  forwarded  with  the 
voucher  to  the  auditor  of  disbursements.^ 

The  fourth  copy  is  further  used  as  a  temporary  or 
"suspense"  document  when  it  is  desired  to  hasten  pay- 
ment so  as  to  take  advantage  of  a  discount  ^  and  it  would 
involve  too  great  a  delay  to  wait  for  the  final  certifica- 
tion of  receipt  by  the  consignee.  In  cases  requiring 
rapid  handling  of  this  sort,  the  first  and  second  copies 

1  The  lower  portions  of  the  first  three  copies  of  the  bill  contain 
provision  for  special  entries  as  follows:  Original,  (i)  "Correct  as  to 
price  and  quantity  ordered,"  signature  of  bill  clerk  in  office  of  pur- 
chasing agent;  (2)  "I  certify  that  the  above  described  material  was 
received  (date)  for  the  use  and  benefit  of  the  company  and  is  cor- 
rect," signature  of  consignee;  (3)  "approved,"  signature  of 

;  Duplicate,   (consignee's  office  record)  :  "Original 

signed  and  forwarded  to  ,"  date,  signature  of  con- 
signee; Triplicate,  (purchasing  agent's  office  record):  (i)  "Bill  re- 
ceived" (date)  ;  (2)  "Shipping  receipt  received"  (date)  ;  (3)  "Bill  re- 
ceived voucher  department"  (date)  ;  (4)  "Bill  vouchered"  (date)  ; 
(these  four  items  being  arranged  in  inverse  order). 

2  The  railroad  company  negotiates  for  a  2  per  cent  discount  for 
payment  within  ten  days  of  receipt  of  bill  in  the  purchasing  agent's 
office.  It  never  undertakes  to  discount  a  bill  if  the  discount  amounts 
to  less  than  i  per  cent.  It  is  stated  that  the  total  discounts  received 
by  this  office  more  than  cover  its  entire  pay-roll. 

252 


APPENDIX  2 

of  the  invoice  are  held  in  the  purchasing  agent's  office 
and  the  fourth  and  fifth  copies,  printed  in  red,  are  sent 
to  the  consignee,  who,  on  receipt  of  the  goods,  signs 
the  fourth  copy  merely  to  the  effect  that  "the  above 
material  was  received,"  thus  not  certifying  that  the  con- 
signment is  correct.^  On  the  basis  of  this  receipt  on 
the  fourth  copy,  vouchers  are  prepared  in  the  voucher 
department  and  the  original  and  duplicate  of  the  in- 
voice are  sent  with  the  fourth  copy  and  the  voucher  to 
the  auditor  of  disbursements,  who  stamps  the  original 
copy  of  the  invoice  "vouchered"  and  sends  the  original 
and  duplicate  to  the  consignee  direct.  The  auditor  files 
the  fourth  copy  as  his  authority  for  paying  the  bills 
and  keeps  the  charge  therefor  in  a  suspense  account  un- 
til the  original  comes  back  from  the  consignee.  It  is 
then  checked  against  the  fourth  copy  and  the  charge 
is  removed  from  the  suspense  account. 

In  cases  where  there  have  been  extensive  dealings  with 
a  reputable  firm,  the  procedure  is  still  further  speeded 
up  by  stamping  on  the  fourth  and  fifth  copies  of  the  in- 
voice the  words  "vouchered  on  bill  of  lading,"  the  fifth 
being  then  sent  to  the  consignee  and  the  fourth  with  the 
original  and  duplicate  and  the  bill  of  lading  to  the  au- 
ditor of  disbursements,  who  retains  the  bill  of  lading  as 
his  authority  in  place  of  the  signature  of  the  consignee 
on  the  fourth  copy. 

Invoices  are  checked  as  to  accuracy  of  extensions  and 
footings  by  the  auditor  of  disbursements,  the  purchas- 
ing agent's  office  having  nothing  to  do  with  this. 

^  The  fourth  copy  contains  this  direction  to  the  consignee :  "Im- 
mediately upon  receipt  of  this  shipment,  sign  your  name  in  space 
opposite  and  send  the  original  of  this  receipt  by  train  mail  directly 
to  the  undersigned,  so  that  we  can  take  advantage  of  discount  allowed 
for  prompt  payment." 

253 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

SAIvE  OE  SCRAP 

The  sale  of  scrap,  surplus  and  obsolete  materials  is 
conducted  through  the  office  of  the  purchasing  agent. 
Condemnation  is  made  by  each  department  concerned, 
according  to  a  fixed  rule.  Lists  of  condemned  articles 
are  sent  as  often  as  possible  to  the  general  storekeeper 
who  may  provide  for  transfer  to  another  division  of  the 
railroad,  if  he  has  knowledge  that  the  goods  may  be 
there  used.  All  scrap  is  sorted  and  sold  not  as  scrap, 
but  as  metal.  Copper  is  separated  from  all  other  met- 
als and  divided  into  general  classes. 

Reports  of  the  list  of  condemned  articles  and  of  scrap 
on  hand  are  submitted  monthly,  obsolete  stock  being 
handled  by  special  reports.  The  reports  are  directed 
to  the  purchasing  agent  with  a  request  that  a  sales  order 
be  furnished.  On  the  receipt  of  such  a  request  the 
purchasing  agent  requests  bids  on  the  definite  quanti- 
ties stated.  The  request  for  bids  is  on  a  printed  form 
listing  the  several  types  of  scrap  to  be  sold,  and  on  this 
form  bidders  submit  prices  against  the  items  they  de- 
sire. Bids  are  tabulated  and  the  award  is  made  to  the 
highest  bidder,  other  things  being  considered. 

Bidders  are  not  allowed  as  a  usual  thing  to  see  the 
scrap  before  submitting  their  prices,  it  being  classified 
in  such  a  way  that  they  can  bid  upon  it  as  metal  and 
not  as  scrap.  After  awards  are  made  out,  sales  orders 
are  issued  to  the  divisions  having  the  scrap  or  obsolete 
stock  directing  them  to  ship  to  the  successful  bidders. 


APPENDIX  3 

CONTINUING  AGREEMENTS  IN  CITY 
PURCHASING 

Extracts    from   a   paper   on    "A    Central    Purchasing 
Agency  for  the  City  of  New  York" 

By  W.  V.  S.  Thorne  ^ 

As  already  stated,  a  chief  object  of  this  paper  is  to 
recommend  certain  forms  of  continuing  agreements,  in 
most  cases  optional  on  the  part  of  the  city,  which  could 
be  negotiated  advantageously  by  a  central  purchasing 
agency  direct  with  efficient,  reliable  and  responsible 
manufacturers  (or,  if  necessary,  with  jobbers),  who  are 
best  qualified  to  furnish  most  economically  certain  of 
the  articles  or  supplies  required  and  to  refer  to  some  of 
the  benefits  that  should  accrue  to  the  city  thereby. 

The  principles  on  which  these  recommendations  are 
based  are  that  ordinarily  the  more  nearly  supplies  can 
be  bought  direct  from  the  manufacturer,  avoiding  all 

^  From  1903  until  February  i,  1913,  Mr.  Thorne  was  director  of 
purchases  of  the  Union  Pacific  and  Southern  Pacific  Railway  Sys- 
tems, and  from  February  i,  1913,  until  June  30,  1914,  vice-president 
in  charge  of  purchases  and  supplies  of  the  Union  Pacific  System. 
Since  1898  Mr.  Thorne  has  been  treasurer  of  the  Presbyterian  Hos- 
pital in  the  City  of  New  York. 

The  Hospital  Bureau  of  Standards  and  Supplies,  referred  to  here- 
in, was  established  in  March,  1910,  as  the  result  of  a  paper  on  "A 
Central  Purchasing  Agency  for  the  Hospitals  of  New  York,"  pre- 
sented by  Mr.  Thorne  at  a  meeting  of  the  Hospital  Conference  of 
the  City  of  New  York  at  the  Academy  of  Medicine,  on  April  9th, 
1909.  The  paper  from  which  the  extracts  here  printed  were  taken 
was  published  in  pamphlet  form  in  1915. 

255 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

unnecessary  commissions  and  handling  charges,  the 
cheaper  and  often  the  better  they  can  be  obtained,  and, 
also,  that  if  a  seller  felt  that  the  city  was  willing  to  buy 
certain  articles  from  him  under  some  form  of  continu- 
ing agreement,  as  long  as  the  city  could  not  do  better 
by  going  to  some  other  source  of  supply,  that  seller 
would  ordinarily  be  willing  to  quote  lower  prices  under 
such  a  continuing  agreement  than  he  would  quote  on  a 
single  order  only,  for  the  reasons  stated  more  fully 
later. 

By  having  on  file  continuing  agreements  based  on 
definite  specifications,  whereby  sellers  can  anticipate 
probable  requirements  and  prepare  for  them,  orders 
may  be  placed  direct  as  soon  as  requisitions  are  received 
and  properly  approved,  without  wasting  time  in  shop- 
ping or  asking  for  bids  or  discussing  the  quality  or  kind 
of  articles  wanted,  and  thus  much  time  and  labor  can 
be  saved  in  ordering  and  receiving  supplies.  When  so 
desired  the  company  furnishing  the  goods  would  nearly 
always  agree  without  extra  charge  to  carry  on  hand 
at  all  times  in  New  York  such  supplies  as  would  enable 
it  to  fill  orders  out  of  stock.  In  fact  many  of  the  large 
manufacturers  already  have  good  facilities  for  stocking 
their  wares  in  New  York,  or  have  agents  with  whom 
they  could  make  very  favorable  arrangements  for  so 
doing. 

If  a  manufacturer  or  jobber  felt  that  the  city  would 
repeatedly  purchase  from  him,  under  some  suitable  form 
of  continuing  agreement,  large  quantities  of  articles  of 
exactly  the  same  kinds,  and  would  not  change  the  stand- 
ards or  the  agreement  without  excellent  reason,  he  would 
ordinarily  be  much  interested  and  would  quote  very  low 
figures,  hoping  thereby  to  secure  such  business  con- 
tinuously and  thus  eliminate  the  usual  selling  expense 

256 


APPENDIX  3 

in  connection  with  future  business,  and  reduce  his  aver- 
age cost  of  manufacture  by  increasing  his  production. 

If  agreements  can  remain  in  force  indefinitely,  as 
long  as  they  are  mutually  satisfactory,  or  until  sufficient 
inducement  is  offered  to  justify  a  change,  there  will  be 
no  unnecessary  labor  of  renewal  at  fixed  intervals. 

The  forms  of  agreements  suggested  are  similar  to 
those  used  with  very  satisfactory  results  by  the  Union 
Pacific  and  Southern  Pacific  Railway  Systems  and  their 
allied  companies  in  purchasing  from  forty  to  fifty  mil- 
lions of  dollars  worth  of  supplies  per  annum  during  ten 
years  in  which  the  writer  had  general  supervision  of 
their  purchasing  departments.  Such  agreements  are^ 
also,  in  use  by  those  companies  at  present.  The  agree- 
ments suggested  are  also  similar  in  form  to  those  which 
have  been  used  by  the  Hospital  Bureau  of  Standards  and 
Supplies,  on  behalf  of  the  thirty-six  hospitals  (about  half 
of  which  are  in  New  York  City)  composing  its  member- 
ship, since  its  organization  in  March,  1910,  up  to  the 
present. 

It  will,  therefore,  be  apparent  that  the  recommenda- 
tions offered  are  based  on  extended  actual  practical  ex- 
perience in  purchasing  supplies  in  large  quantities, 
where  it  has  been  necessary  to  buy  most  economically 
and  at  the  same  time  to  secure  articles  of  quality  and 
kinds  best  suited  to  meet  carefully  considered  standards. 

Kind  of  Articles  to  be  Purchased  Under  Continuing 
Agreements.  It  is  not  contended  that  all  supplies  pur- 
chased for  a  city  could  be  bought  to  advantage  under 
continuing  agreements,  but  it  is  believed  that  eventually 
from  60  to  70  per  cent  of  the  city's  purchases  could  best 
be  obtained  in  that  manner. 

The  kind  of  articles  or  supplies  which  could  be  most 

257 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

advantageously  covered  by  such  agreements  would  be 
such  as  the  city  had  standardized  and  which  were  used 
more  or  less  regularly.  Such  agreements  could  well 
be  made  to  cover  many  manufactured  articles  or  sup- 
plies, the  market  value  of  which  would  naturally  fluc- 
tuate in  some  definite  relation  to  the  price  of  the  prin- 
cipal raw  material  or  materials  of  which  they  were  com- 
posed, and  prices  of  the  finished  product  could,  there- 
fore, be  regulated  by  some  fair  sliding  scale  of  prices 
based  on  prices  of  the  raw  material  as  published  quar- 
terly or  monthly  in  some  well  recognized  trade  journal. 
Also  many  manufactured  articles,  the  prices  of  which 
are  nearly  all  due  to  cost  of  labor  only  and  hence  not 
subject  to  much  fluctuation,  could  in  many  cases  well 
be  purchased  under  such  agreements. 

On  the  other  hand,  such  articles  as  hay,  grain,  lum- 
ber, cement,  bricks,  stone,  etc.,  the  prices  of  which  might 
be  subject  to  wide  unforeseeable  fluctuations  according 
to  time  of  purchase,  point  of  delivery,  quantity  in  hands 
of  seller,  quantity  desired,  etc.,  could  probably  be  pur- 
chased to  best  advantage  by  inviting  bids  from  responsi- 
ble dealers  for  definite  quantities  of  such  supplies  actu- 
ally wanted  for  some  fixed  period  of  time  at  some  fixed 
price.  The  prices  of  such  articles  could  not  satisfac- 
torily be  regulated  by  published  prices  in  trade  jour- 
nals. 

In  case  of  certain  perishable  articles,  also,  it  might 
be  found  preferable  to  only  contract  for  fixed  amounts 
at  fixed  prices  for  a  certain  definite  period,  as  it  is  dif- 
ficult to  foresee  fluctuations  in  some  of  these  articles  or 
to  arrange  any  fair  sliding  scale  basis  for  adjusting 
prices  indefinitely. 

It  would  of  course  not  be  worth  while  to  try  to  nego- 

258 


APPENDIX  3 

tiate  continuing  agreements  with  manufacturers  cov- 
ering articles  seldom  purchased. 

Optional  Character  of  Continuing  Agreements.  Continu- 
ing agreements  are  nearly  all  optional  on  the  part  of 
the  buyers,  although  made  in  good  faith  and  with  the 
tacit  understanding  that  buyers  will  make  use  of  them 
unless  better  terms,  all  things  considered,  can  be  se- 
cured from  other  parties. 

In  some  few  agreements  it  may  be  necessary  for  the 
buyers  to  be  obligated  to  purchase  a  part  or  all  of  their 
requirements  from  the  sellers,  instead  of  having  the 
agreement  entirely  optional  for  the  buyers.  Generally 
these  exceptional  cases  would  be  where  the  articles  were 
made  especially  for  the  buyers  and  hence  not  readily 
salable  to  other  customers,  or  sometimes  where  the 
supplies  furnished  were  of  a  perishable  nature.  In 
some  cases,  on  account  of  quantities  purchased  or  the 
location  of  factories,  etc.,  the  buyers  may  consider  it 
necessary  to  have  agreements  for  the  same  kind  of  ar- 
ticles with  two  manufacturers  in  effect  at  the  same  time, 
with  the  knowledge  of  both  manufacturers  concerned; 
but  ordinarily  it  has  been  found  advisable  not  to  have 
more  than  one  agreement  in  effect  at  a  time  covering 
the  same  particular  kind  of  articles,  as  the  principal 
inducement  to  the  manufacturers  to  use  every  effort  to 
name  low  prices  and  give  the  best  service  is  that  they 
may  thereby  secure  as  large  a  volume  of  regular  busi- 
ness as  possible,  and  thus  be  able  to  manufacture  at 
minimum  costs  and  to  reduce  handling  and  selling 
charges,  etc.,  per  unit,  which  they  could  not  w^ll  do  if 
orders  were  distributed  among  several  firms. 

Most  of  these  agreements  obligate  the  seller  to  con- 
tinue to  carry  out  his  part  of  the  agreement  until  six 

259 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

months'  written  notice  to  the  buyer  of  the  seller's  desire 
to  cancel  or  to  alter  any  of  the  terms  of  the  agreements, 
if  immediate  cancellation  or  alteration  is  not  mutually 
agreeable. 

Manufacturers  ordinarily  are  willing  to  give  the  buy- 
ers the  advantage  of  such  terms,  as  they  can  usually 
protect  themselves  on  raw  material,  and  thus  can  afford 
to  name  prices  good  six  months  ahead  on  the  probable 
requirements  of  certain  of  their  non-speculating  cus- 
tomers. Agreements  in  which  the  prices  vary  accord- 
ing to  a  fair  sliding  scale,  based  on  the  price  of  raw  ma- 
terials concerned,  of  course  automatically  provide  for 
price  adjustment  at  regular  intervals  and  thus  elimi- 
nate most  of  the  speculative  elements,  and  such  agree- 
ments have  been  found  very  satisfactory  to  both  buyers 
and  sellers. 

On  account  of  the  large  variety  of  continuing  agree- 
ments New  York  City  might  have,  it  would  be  well  for 
the  city  ordinarily  to  be  able  to  cancel  any  of  these  on 
rather  short  notice,  say  about  two  months  or  less,  to 
the  seller. 

Buyers,  unlike  the  manufacturers,  are  not  specialists 
in  one  line  of  goods  and  hence  usually  cannot  have  as 
good  facilities  for  forecasting  changes  in  costs  of  pro- 
duction or  in  competitive  conditions.  Therefore,  if 
there  is  any  good  reason  why  the  buyers  could  obtain 
lower  prices  than  those  the  seller  was  willing  to  con- 
cede under  the  agreement,  the  buyer  should  be  allowed 
to  avail  himself  of  any  opportunity  to  make  a  more 
favorable  agreement  with  other  parties  without  too 
much  delay.  For  these  reasons,  a  stipulation  that  the 
buyer  may  cancel  the  agreement  on  short  notice  is  seldom 
any  real  hardship  to  the  seller. 

Two  months  should  usually  afiFord  plenty  of  time  for 

260 


APPENDIX  3 

a  manufacturer  to  investigate  conditions  and  notify  the 
general  purchasing  agent  if  there  were  any  good  rea- 
sons why  any  continuing  agreement  he  might  have  with 
the  city  should  not  be  cancelled. 

In  nearly  all  continuing  agreements  covering  any  vol- 
ume of  business,  it  has  been  found  possible  to  get  the 
seller  to  agree  that  if  during  the  term  of  the  agreement 
he  makes  any  lower  prices  on  similar  articles  to  any 
other  customer,  he  will  thereafter  make  corresponding 
reductions  in  prices  to  the  buyer  on  any  similar  articles 
the  buyer  may  order,  during  any  month  in  which  the 
seller  may  make  to  any  other  customer  prices  lower 
than  those  current  under  the  agreement. 

The  agreements  also  provide  that  the  seller  will  notify 
the  buyer  promptly  of  any  such  price  reductions. 

It  has  been  found  preferable  to  have  most  of  such 
continuing  agreements  run  indefinitely  until  cancelled, 
as  most  of  these  do  not  strictly  and  legally  obligate  the 
buyer  but  do  obligate  the  seller,  so  that  the  buyer  suf- 
fers no  loss  by  reason  of  the  indefinite  term  of  the 
agreement,  and,  on  the  other  hand,  he  gains  by  not 
having  to  reopen  negotiations  merely  because  an  arbi- 
trary period  of  time  has  expired. 

If  such  system  of  buying  is  to  prove  successful,  how- 
ever, the  buyers  must  make  and  carry  out  their  part 
of  such  agreements  in  good  faith,  so  that  the  sellers  will 
consider  they  are  receiving  fair  and  reasonable  treat- 
ment. 

After  such  an  agreement  is  negotiated  with  a  seller^ 
and  during  the  term  of  the  agreement,  he  should  receive 
the  business  he  is  led  to  suppose  he  will  obtain,  unless 
there  is  some  really  good  reason  why  articles  referred 
to  can  be  obtained  cheaper  or  better  elsewhere,  in  which 
case  the  general  purchasing  agent  should  be  promptly 

261 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

advised  with  particulars  so  that  he  may  give  the  mat- 
ter proper  consideration  and  attention. 

Where  agreements  run  indefinitely  until  cancelled,  it 
will  frequently  be  found  that  on  a  rising  market  the 
manufacturers  will  forget  or  delay  giving  notice  of  de- 
sire on  their  part  to  cancel  an  agreement  and  the  buyer 
often  thereby  obtains  considerably  lower  prices  for  some 
months  than  he  might  have  obtained  without  such  agree- 
ment. 

It  will  also  often  be  found  when  on  a  rising  market 
a  manufacturer  does  give  the  six  months'  notice  of  an 
advance  in  prices,  that  by  the  expiration  of  the  six 
months  prices  may  have  eased  off  a  little,  or  the  manu- 
facturer has  so  adjusted  his  work  that  he  is  willing  to 
withdraw  his  notice  of  cancellation. 

Where  the  seller  has  to  give  notice  of  cancellation  in 
advance,  the  buyer  is  given  plenty  of  time  to  negotiate 
with  other  parties  before  reaching  final  conclusions,  and 
the  buyer  is  given  time  to  stock  up  a  little  if  it  is  found 
to  be  evidently  desirable  to  take  such  action. 

If  agreements  are  made  only  for  fixed  quantities  of 
supplies  and  if  they  must  expire  at  some  stated  time, 
as  is  ordinarily  the  practice^  it  often  requires  consider- 
able labor  and  active  steps  to  renew  such  agreements, 
and  these  steps  may  have  to  be  taken  when  conditions 
are  not  at  all  favorable  from  a  buyer's  point  of  view 
with  results  less  advantageous  for  the  buyer  than  if  the 
agreement  were  a  continuing  one  and  the  question  of 
renewal  did  not  have  to  be  raised,  except  on  the  initia- 
tive of  either  party. 

If  a  competent  buyer  is  able  on  short  notice  to  take 
up  with  any  parties  the  question  of  making  a  continu- 
ing agreement  covering  any  articles  he  desires  to  pur- 
chase, and  if  the  buyer  can  select  the  dullest  business 

262 


APPENDIX  3 

times  in  which  to  do  this,  or  can  act  promptly  when- 
ever a  sufficiently  favorable  proposition  is  available 
from  any  responsible  party,  there  is  no  doubt  but  that 
some  very  favorable  agreements  can  be  secured  which 
may  run  for  many  years  and  which  at  many  times  it 
would  be  difficult  to  duplicate. 

Forms  of  Continuing  Agreements.  In  regard  to  the 
forms  in  which  the  general  purchasing  agent  should 
make  agreements,  the  following  suggestions  are  of- 
fered : 

Each  manufacturer,  or  if  necessary,  each  jobber, 
from  whom  it  is  thought  worth  while  to  obtain  bids  on 
such  articles  used  regularly  by  the  city  as  can  readily 
be  covered  by  continuing  agreements,  should  be  asked 
to  write  a  letter  in  about  the  following  form : 

April  15th,  191 5. 
John  Smith,  Esq., 

General  Purchasing  Agent, 
City  of  New  York. 

Dear  Sir: 

In  consideration  of  the  sum  of  one  dollar,  receipt  of  which  is 
hereby  acknowledged,  we  will  furnish  to  the  City  of  New  York  and 

to  the  departments  thereof,  or  to  any  of  them,  such  (here 

insert  kind  of  articles  to  be  furnished)  as  they  may,  at  their  option, 
desire  to  purchase  from  us,  for  their  own  use  under  the  following 
terms  and  conditions : 

(a)  Specifications  and  Drawings 

These are  to  meet  the  requirements  of  the  City's  specifica- 
tion No ,  dated   entitled  ,  and   (if 

reference  to  any  drawing  or  drawings  is  necessary)    are  to  be  as 

shown  in  full  detail  on  drawing  No ,  dated  , 

marked 

or  (b)  Catalogue 

These   are  to  be  as  illustrated  and  described  on  pages 

to  in  our  Catalogue  No.  8,  dated  April,  1915, 

marked ,  of  which  catalogue  we  will  furnish  as  many 

copies  as  may  be  desired. 

263 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

or  (c)  Description 

These are  to  be  (here  insert  a  full  and  detailed  descrip- 
tion of  articles  referred  to). 

Quality  and  Workmanship 

It  is  understood  that  all  material  and  workmanship  of  articles  fur- 
nished by  us  will  be  first  class  in  every  respect  and  satisfactory  to 
the  City's  inspector. 

Prices 

(a)  The  prices  at  which  we  would  furnish  the 

referred  to  above  are  as  follows: 

(Here  insert  list  of  prices  for  each  article) 

or  (b)   The  prices  at  which  we  would  furnish  the  

referred  to,  or  parts  thereof,  are  to  be  at  forty  per  cent  discount 

from  our  price  list  No ,  dated  ,  of  which  we 

enclose    copies    (or  at   forty  per  cent  discount  from  list 

prices  mentioned  in  our  Catalogue  referred  to). 

Prices  of  Parts  Only,  Required  for  Repairs 

(a)  These  consist  of  the  following  parts,  which 

we  will  furnish  if  required  for  purposes  of  repairs,  at  the  prices 
named  opposite  each. 

(Insert  here  [if  not  long]  detailed  list  of  parts  showing  reference 
numbers,  materials,  prices,  etc.,  of  each.) 

or  (b)  The  prices  at  which  we  would  furnish  repair  parts  are  at 
40  per  cent  discount  from  list  prices  shown  on  our  price  list  No. 

dated   ,  marked  ,  or  (if 

more  convenient  to  show  list  prices  of  parts  on  some  drawings  illus- 
trating articles  referred  to)  at per  cent  discount  from 

list  prices  shown  on  drawings  referred  to. 

Other  Sizes  and  Kinds  of  

In  case  size  or  kinds  of made  by  us,  other  than  those 

referred  to  above,  are  wanted,  we  would  be  willing  to  furnish  them 
under  the  same  terms  and  conditions  and  at  prices  correspondingly 
as  low  as  the  prices  named  above,  considering  cost  of  manufacture 
in  each  case. 

Packing 

All  will  be  properly  packed  in for  which 

no  extra  charge  will  be  made.  (If  extra  charges  are  to  be  made  for 
packing,  etc.,  explicit  information  in  regard  to  this  should  be  given.) 

Delivery 

The  prices  named  are  for  delivery  at  any  point  in  New  York  City 
or  at 

Terms  of  Payment 

Terms  of  payment  are  to  be  net  cash  in  sixty  days  (or,  if  neces- 
sary, in  thirty  days)   from  date  of  invoice  and  delivery  of  material. 

264 


APPENDIX  3 

If  bills  are  paid  within  ten  days  of  date  of  invoice  and  shipment  of 
material  a  further  cash  discount  of per  cent  will  be  allowed. 

Facilities,  etc. 

(In  some  agreements  it  is  desirable  to  have  the  manufacturer 
describe  briefly  his  experience  and  facilities  for  manufacturing  the 
articles  offered  and  state  any  reasons  why  he  thinks  he  is  in  a 
particularly  good  position  to  furnish  articles  best  suited  to  require- 
ments, and  what  guarantees,  if  any,  he  is  willing  to  give  in  regard  to 
the  supplies  he  may  furnish.) 

Address  for  and  Prompt  Filling  of  Orders 

All  orders  should  be  addressed  to  us  at   and  will  be 

filled  promptly,  but  fires,  strikes  of  operatives  or  any  other  unavoid- 
able cause  beyond  our  control  will  relieve  us  from  prompt  fulfillment 
of  agreement. 

Stock  on  Hand 

We  agree  to  carry  on  hand  at  all  times  such  a  stock  of 

as  to  enable  us  to  furnish  these  promptly  on  receipt  of  orders. 

Protection  Against  Patent  Suits  or  Claims  for  Royalty 

We  guarantee  to  protect  the  City  of  New  York  against  loss  through 
patent  suits  or  claims  for  royalty  charges  on  articles  furnished  under 
this  agreement. 

Lower  Prices  in  Case  of  Lower  Prices  to  Other  Customers 

Should  we,  during  the  term  of  this  agreement,  sell  similar , 

to  any  other  customer  at  prices  lower  than  we  have  named  herein, 
we  agree  to  make  corresponding  reductions  in  prices  to  the  City  of 

New  York  on   furnished  on  orders  its  representatives 

may  place  with  us  for  similar  during  any  months  in 

which  we  may  make  lower  prices  on  similar   to  any 

other  customer.  We  agree  to  notify  you  promptly  of  any  such  price 
reductions. 

(It  may  not  be  possible  in  all  cases  to  get  the  seller  to  insert  the 
foregoing  clause  in  the  agreement,  but  ordinarily  the  seller  should 
be  willing  to  do  this  where  purchases  are  apt  to  cover  considerable 
quantity.  It  is  desirable  that  the  purchaser  should  have  assurance 
under  such  agreement  of  being  treated  at  least  as  well  as  seller's  most 
favored  customer.) 

Term  of  Agreement 

The  foregoing  option  may  be  terminated  by  us  on  six  months' 
written  notice  to  your  oflice,  but  such  notice  shall  not  affect  our 
obligation  to  fill  orders  placed  with  us  hereunder  prior  to  the  expira- 
tion of  such  six  months.  It  is  understood  by  us  that  in  case  it  is  your 
intention  to  make  another  similar  agreement  between  the  City  of 

New  York  and  parties  other  than  ourselves  covering 

you  will  give  us  two  months'  notice  in  advance  of  such  intention,  so 
that  in  case  we  have  any  suggestions  to  make  as  to  why  we  do  not 

265 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

think  it  would  be  advisable  for  you  to  take  such  action,  we  may  have 
an  opportunity  to  do  so. 

Please  acknowledge  receipt  of  this  proposition,  and  advise  if  it  is 
satisfactory  and  accepted,  and  if  you  will  send  a  copy  hereof  to  the 
head  of  each  department  concerned  of  the  City  of  New  York  for  his 
confidential  information. 

Yours  truly. 

Brown,  Jones  &  Company. 

Agreements  Having  Schedules.  In  some  cases,  where  a 
number  of  different  articles  of  similar  nature,  such  as 
chinaware,  glassware,  silverware,  table  linen,  brushes, 
electric  lamps,  paints,  rubber  hose,  etc.,  are  to  be  cov- 
ered by  continuing  agreements,  it  may  be  convenient  to 
list  the  articles  referred  to  in  each  agreement  on  a  sched- 
ule, showing  item  numbers  or  catalogue  page  and  ref- 
erence numbers  for  use  on  orders,  weights,  material, 
sizes,  prices,  marking,  if  any,  uses  for  which  each  item 
is  intended,  or  other  similar  information  which  might 
be  of  interest. 

This  schedule  could  be  referred  to  in  the  seller's 
proposition  and  made  a  part  of  the  agreement  by  insert- 
ing a  clause  reading  somewhat  as  follows : 

Schedule  A — Prices,  Etc. 

The which  we  propose  to  furnish  is  referred 

to  on  Schedule  A,  dated  April  5,  1915,  enclosed  herewith,  which 
shows  reference  numbers  for  use  on  orders,  catalogue  references, 
weights,  materials,  marking,  etc.,  and  prices  at  which  we  would  fur- 
nish each  of  the  articles  referred  to. 

In  agreements  where  prices  are  to  be  based  on  a  sliding  scale  and 
adjusted  periodically  according  to  the  price  of  some  raw  material, 
which  may  be  selected  as  a  fair  barometer,  it  has  been  found  desirable 
to  show  the  sliding  scale  arrangement  on  a  separate  schedule,  and 
refer  to  it  in  the  proposition  of  the  seller  somewhat  as  follows: 

Schedule  A — Prices,  Etc. 

The  prices  at  which  we  would  furnish referred 

to  are  to  be  as  indicated  on  Schedule  A,  dated  April  5,  1915,  enclosed 
herewith. 

Prices  Effective  During  Quarter  Ending  June  30,  1915. 

As  the  average  price  of  Bessemer  Pig  Iron  at  Pittsburgh,  Pa.,  as 
quoted   weekly  in  the  "Iron  Age"   during  March,    1915,   under  the 

266 


APPENDIX  3 

heading  "A  Comparison  of  Prices"  was  $14.55  P^r  gross  ton,  it  is 

understood  that  the  prices  of   furnished  on 

orders  placed  with  us  under  this  agreement  during  the  quarter  ending 
June  30,  1915,  will  be  as  indicated  on  Schedule  "A"  as  effective,  when 
the  average  price  of  Bessemer  Pig  Iron  at  Pittsburgh  is  from  $14.01 
to  $15.00  per  gross  ton.  We  are  not  now  quoting  any  lower  prices 
on  similar to  any  other  customer. 

Schedule  *'A"  might  be  made  about  as  follows : 


To  accompany  proposi- 
tion dated  April  5,  1915, 
from  Brown,  Jones  & 
Company  to  John  Smith, 
Esq. 
Schedule  "A,"  dated  April  5,  1915 


When  the  average  price  in  dol- 
lars per  gross  ton  of  Bessemer 
Pig  Iron  at  Pittsburgh,  Pa.,  as 
quoted  weekly  in  the  "Iron  Age," 
under  the  heading  "A  Compari- 
son of  Prices,"  during  the  months 
of  June,  September  or  December 
in  any  year  is  from 


The  price  in  cents  per  pound 

(or  price  each)  of  

furnished  on  orders  placed  with 
the  sellers  during  any  subsequent 
three  months'  period,  during  the 
term  of  this  agreement,  is  to  be 
as  indicated  below: 


II.OI 

to 

12.00 

12.01 

<< 

13.00 

13.01 

14.00 

14.01 

15.00 

I-^.OI 

16.00 

16.01 

« 

17.00 

17.01 

tt 

18.00 

18.01 

u 

19.00 

19.01 

« 

20.00 

20.01 

(( 

21.00 

21.01 

« 

22.00 

22.01 

23.00 

(Insert  Prices  Here) 


For   higher   or  lower   average   prices   of   Bessemer   Pig  Iron,   as 

quoted  in  the  "Iron  Age,"  prices  of  are  to 

advance  or  decline  correspondingly. 

Revision  and  Identification  of  Schedules.  Such 
schedules  should  always  be  dated  and  described  for 
identification,  so  that  if  on  account  of  changes  in  prices 
or  changes  in  some  of  the  items  referred  to  thereon,  it 
is  mutually  agreed  to  revise  the  schedules  from  time  to 

267 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

time,  this  can  be  done  and  a  new  schedule  properly  iden- 
tified can  be  distributed  as  a  supplement  to  the  original 
agreement  without  necessarily  involving  many  other 
changes  in  the  original  proposition. 

Sliding^  Scale  Agreements.  In  at  least  20  per  cent  in 
number  of  the  continuing  agreements  made  on  behalf 
of  the  Union  Pacific  and  Southern  Pacific  Railway  Sys- 
tems, it  was  found  advisable  to  have  the  prices  of  the 
finished  articles,  when  once  agreed  upon,  thereafter  au- 
tomatically fluctuate  in  accordance  with  a  fair  sliding 
scale  based  on  the  price  of  raw  material  from  which  such 
articles  were  made,  as  quoted  in  the  most  reliable  trade 
journal  that  is  an  authority  on  such  matters,  providing 
seller  was  not  quoting  lower  prices  to  any  other  cus- 
tomer. The  aggregate  money  value  of  the  articles  pur- 
chased under  these  sliding  scale  agreements  by  the  rail- 
way companies  was  about  60  per  cent  of  the  companies^ 
total  purchases  which  were  made  under  continuing 
agreements. 

These  sliding  scales  applied  particularly  to  certain 
manufactured  products  of  iron,  copper,  lea4,  hemp,  rub- 
ber, linseed  oil,  etc.,  in  which  the  cost  of  the  raw  ma- 
terials amounts  to  from  50  per  cent  to  80  per  cent  of  the 
cost  of  the  finished  article. 

Thus,  for  instance,  the  average  price  of  Bessemer 
pig  iron,  steel  billets,  tank  plates,  beams  and  channels, 
steel  bars,  or  plain  fence  wire,  etc.,  at  Pittsburgh,  Pa., 
as  quoted  in  the  "Iron  Age,"  or  the  average  price  of 
electrolytic  copper  f.o.b.  New  York,  as  quoted  in  the 
"Engineering  and  Mining  Journal,"  or  the  average  price 
of  up  river  coarse  new  Para  rubber  or  of  up  river 
fine  new  Para  rubber  f.o.b.  New  York,  as  quoted  in 
the  "India  Rubber  World,"  or  the  average  price  of  cer- 

268 


APPENDIX  3 

tain  kinds  of  hemp,  f.o.b.  New  York,  as  quoted  in  the 
"New  York  Journal  of  Commerce,"  or  the  average  price 
of  raw  linseed  oil,  in  car-load  lots  f.o.b.  New  York, 
as  quoted  in  the  "Paint,  Oil  and  Drug  Reporter,"  dur- 
ing the  months  of  March,  June,  September  and  Decem- 
ber of  any  calendar  year,  would,  by  using  proper  dif- 
ferentials, fix  the  prices  to  be  paid  for  finished  prod- 
ucts of  such  materials  ordered  from  the  manufacturer 
during  the  respective  subsequent  three  months'  period 
during  the  term  of  the  agreement. 

Such  a  sliding  scale  basis  protects  both  the  buyers 
and  sellers,  and  in  agreements  extending  over  long  peri- 
ods avoids  many  controversies  as  to  how  prices  should 
be  fairly  adjusted  when  general  conditions,  change. 

Under  these  sliding  scale  agreements,  where  prices 
are  adjusted  every  three  months,  as  described,  the  buyer 
has  a  slight  advantage,  for  on  a  rising  market  he  can 
place  his  orders  with  the  manufacturer  at  any  time  be- 
fore the  end  of  the  quarter  and  have  the  price  based  on 
the  average  price  of  the  raw  material  in  the  month  pre- 
ceding the  quarter  of  the  calendar  year  in  which  the 
order  was  placed. 

On  a  falling  market  the  buyer  can  usually  delay  plac- 
ing orders  he  may  have  on  hand  until  the  first  week  of 
the  following  quarter,  when  prices  would  be  based  on 
more  recent  and  lower  prices  of  raw  material. 

The  clause  in  the  agreement  in  regard  to  the  manu- 
facturer granting  lower  prices  to  the  buyer  in  case  he 
quotes  lower  prices  to  any  other  customer  of  course 
gives  the  buyer  additional  protection. 

While  there  may  not  be  very  many  kinds  of  supplies 
used  by  the  city  which  could  be  purchased  satisfactorily 
under  sliding  scale  agreements,  such  agreements,  when 

269 


PRINCIPLES  OF  GOVERNMENT  PURCHASING 

practicable,  should  save  much  labor  and  would  also  prove 
very  advantageous. 

In  connection  with  any  sliding  scale  agreements  the 
general  purchasing  agent  would  of  course  notify  the 
heads  of  departments  concerned  periodically  in  regard 
to  monthly  average  prices  of  raw  material  on  which 
prices  of  finished  articles  were  to  be  based. 


INDEX 


Advertisement  of  proposals,  length 
of  time  required  for,  48-49. 

American  Locomotive  Company, 
centralization    of    purchasing    in, 

Appropriations,  period  of,  as  limit-  , 
ing  power  of  purchasing  agent  to 
make  long-term  contracts,  58. 

Atchison,  Topeka  &  Santa  Fe  Rail- 
road System,  centralization  of 
purchasing  in,  17. 

Award  to  lowest  bidder,  require- 
ment of,  waived  below  certain 
amount,  47;  waived  if  lowest  bid- 
der has  been  in  default,  51 ;  as  af- 
fected by  responsibility  and  busi- 
ness standing  of  bidder,  52-53. 

Baltimore,  centralization  of  .purchas- 
ing in,  29;  award  of  contract  to 
bidder  in  default  not  required,  51 ; 
standardization  committee  estab- 
lished in,  13s ;  alternative  bidding 
in,  149;  bulletin  board  publicity 
of  purchases  in,  178;  certification 
required  with  invoice  in,  209. 

Bills,  avoiding  duplicate  payment 
of,  216;  prompt  payment  of,  218- 
222. 

Bulletin  board  publicity,  177-180. 

Bureau  of  Chemistry,  should  aid  in 
developing  methods  of  inspection 
and  test,  206. 

Bureau  of  Standards,  should  aid  in 
developing  methods  of  inspection 
and  test,  206. 

Central  control  over  stores,  success 
of  central  purchasing  dependent 
upon  proper  plan  of,  41. 

Central  delivery  and  storage,  suc- 
cess of  central  purchasing  de- 
pendent upon  proper  plan  of,  42- 

43-  ,      . 

Centralization  of  purchasmg,  7-43  5 
in  General  Electric  Company,  10; 
in  Westinghouse  Electric  &  Man- 
ufacturing Company,  11-12;  in 
Western    Electric    Company,    12- 


13;  in  International  Harvester 
Company,  14;  in  American  Loco- 
motive Company,  15;  in  Westing- 
house,  Church,  Kerr  Company, 
16;  in  Atchison,  Topeka  &  Santa 
Fe  Railroad  System,  17;  on  New 
York  Central  Lines,  17-18. 

Centralization  of  purchasing  in 
cities,  advantages  of,  21-23;  in 
New  York  City,  23-27;  in  Chi- 
cago, 27-29;  in  Baltimore,  29;  in 
Minneapolis,  30;  in  Qeveland,  30- 
31;  in  Philadelphia,  32;  in  Des 
Moines,  32;  in  Cincinnati,  33-34; 
in  Los  Angeles,  35-36 ;  in  Milwau- 
kee, 27;  in  St.  Louis,  38;  proper 
form  and  extent,  38;  should  in- 
clude department  of  education, 
39;  relation  to  central  stores  con- 
trol and  central  delivery  and  stor- 
age, 41-43- 

Chicago,  centralization  of  purchas- 
ing in,  27-29;  board  of  aldermen 
empowered  to  waive  requirement 
of  competition  and  award  to  low- 
est bidder,  46;  centralization  of 
deliveries  in,  202-203. 

Cincinnati,  centralization  of  pur- 
chasing in,  33-34;  award  to  "low- 
est and  best"  bidder  required,  53 ; 
bulletin  board  publicity  of  pur- 
chases in,  179 ;  organization  of  in- 
spection service  in,  204;  number 
of  copies  of  invoices  required  in, 
211;   payment  of   bills  by,  219. 

City  purchasing,  continuing  agree- 
ments in,  255-270. 

Class  bids,  advantages  of,   142-147. 

Cleveland,  centralization  of  pur- 
chasing in,  30;  competition  and 
award  to  lowest  bidder  not  re- 
quired below  certain  amount,  47; 
limitations  on  purchase  of  pat- 
ented articles  in,  47 ;  competition 
and  award  in  purchasing  dis- 
pensed with  in  emergency,  48; 
award  to  "lowest  and  best"  bid- 
der required,  53 ;  fluctuation  in 
price  in  purchase  agreements  per- 


271 


INDEX 


mitted  in,  165 ;  bulletin  board 
publicity  of  purchases  in,  179; 
method  of  checking  invoices  in, 
216. 

Competition,  requirement  of  waived 
below  certain  amount,  46-47;  ele- 
ments essential  to  securing,  71, 
1 12-122;  geographical  extent  of, 
182. 

Competition  and  award  to  lowest 
bidder,  provisions  requiring,  45- 
53 ;  power  to  waive  requirement 
given  to  administrative  board  in 
Providence,  New  York,  Chicago, 
46;  requirement  of,  waived  in 
purchase  of  patented  articles,  47; 
requirement  of  waived  for  emer- 
gency purchases,  48. 

Construction  jobs,  determination  of 
requirements  for,  TJ ;  determining 
total  quantities  needed  on,  84;  co- 
ordination of  deliveries  with  stor- 
age facilities  and  with  require- 
ments, 86. 

Current  market  prices,  means  em- 
ployed to  secure,  105-109. 

Dayton,  fluctuation  in  price  in  pur- 
chase agreements  permitted  in, 
165 ;  number  of  copies  of  invoices 
required  in,  211 ;  payment  of  bills 
by,  219. 

Deliveries,  coordination  of,  with  re- 
quirements, 86-98;  centralization 
of,  202-203. 

Delivery  conditions,  effect  of  mar- 
ket prices  on,  105 ;  information 
regarding,  should  be  included  in 
invitations  for  bids,  114;  attrac- 
tive factors  in,  121 ;  definiteness 
as    to,    in   purchase   agreements, 

Department  of  education,  purchas- 
ing department  in  cities  should 
include,  39. 

Des  Moines,  centralization  of  pur- 
chasing in,  32. 

Division  storekeeper  in  public  util- 
ity, duties  in  coordinating,  deliv- 
eries with  requirements,  93. 

Engineering  department,  work  of, 
on  construction  jobs,  in  determin- 
ing requirements,  T] ;  in  deter- 
mining quantities  needed,  84;  in 
coordinating  deliveries  with  re- 
quirements, 87, 

Engineering  or  designing  depart- 
ment, work  of,  in  determining  re- 


quirements for  manufacturing 
jobs,  78. 

England,  provisions  in  government 
contracts  governing  labor  condi- 
tions, 58. 

Executing  contracts,  formalities  in, 
189-191, 

Follow-up,  importance  of,  74;  pro- 
cedure, 192-198;  organization  for, 
193;  information  needed  in  work 
of,  194. 

Ford  Motor  Company,  follow-up 
division  in,  193 ;  number  of  copies 
of  invoices  required  by,  211. 

Formal  contracts,  advisability  of 
substituting  purchase  agreements 
for,  56-57. 

General  Electric  Company,  central- 
ization of  purchasing  in,  lo-ii; 
coordination  of  deliveries  with 
requirements  in,  91 ;  method  em- 
ployed in  ascertaining  sources  of 
supply,  103 ;  price  records  kept  by, 
107;  checking  invoices  in,  214; 
purchasing  system  of,  225-240. 

General  storekeeper,  should  have 
supervision  over  departmental 
storekeepers,  41 ;  functions  of,  in 
large  and  small  cities,  42 ;  con- 
sulted in  selection  of  articles  for 
public  utility,  80-81 ;  duties  in  co- 
ordinating deliveries  of  articles 
with  requirements,  on  manufac- 
turing jobs,  92;  in  public  utility, 

93-94- 
Government  purchasing,  problem 
of,  compared  with  purchasing 
problem  of  industrial  corpora- 
tions, 3 ;  elements  causing  ineffi- 
ciency in,  5 ;  legal  restrictions  in, 
44-66;  purchase  agreements  in, 
163-166. 

Handling  invoices  and  paying  bills, 
75,  208-222. 

Inspection,  importance  of,  75 ; 
causes  of  inefficiency  of,  in  gov- 
ernments, 200-202 ;  procedure, 
199-207;  organization  of  force 
for,  203-204. 

Inspection  and  testing,  need  for  a 
national  service  in  developing 
methods  of,  206. 

International  Harvester  Company, 
centralization  of  purchasing  in, 
14. 


272 


INDEX 


Invitation  for  bids,  complete  infor- 
mation to  vendors  in,  114-115; 
elimination  of  speculative  ele- 
ments in,  115-118;  desirability  of 
attractive  quantities  in,  121 ;  at- 
tractive delivery  conditions  in, 
121 ;  special  problems  in  prepar- 
ing, 141-151 ;  class  versus  item, 
142-147;  alternative  bidding  in, 
148-150;  homogeneous  versus 
miscellaneous,  150-151. 

Inviting  bids,  methods  employed  in, 

73-. 

Invoices,  delivery  of,  with  goods, 
208;  number  of  copies  required, 
210;  use  of  purchaser's  stationery 
for,  212;  checking  of,  213-216. 

Item  bids,  advantages  of,  142-147. 

J.  I.  Case  Threshing  Machine  Com- 
pany, information  regarding  sub- 
stitutes maintained  in,  105. 

Labor  conditions,  restrictions  relat- 
ing to,  in  government  contracts, 
58. 

London  County  Council,  notification 
to  dealers  of  purchase  require- 
ments by,  181. 

Los  Angeles,  centralization  of  pur- 
chasing in,  35-36;  provisions  gov- 
erning emergency  purchases  in, 
48;  length  of  time  required  for 
advertisement  of  proposals  in,  49. 

Maintenance  of  way  department, 
function  in  determining  articles 
needed  in  public  utility,  79. 

Making  awards,  discretion  in,  188; 
formalities  in,  189-191. 

Manufacturing  jobs,  determination 
of  articles  required  on,  78;  de- 
termining total  quantities  needed 
on,  84;  coordination  of  deliver- 
ies with  requirements  in  various 
concerns,  88-92. 

Market  conditions  and  tendencies, 
determination  of,  70,  99-1 11. 

Mechanical  department,  function  in 
determining  requirements  in  pub- 
lic utility,  79. 

Milwaukee,  centralization  of  pur- 
chasing in,  2)^. 

Minneapolis,  centralization  of  pur- 
chasing in.  30;  competition  and 
award  to  lowest  bidder  not  re- 
quired below  certain  amount,  47; 
provision  governing  advertise- 
ment  of   proposals   in,   50;   geo- 


graphical extent  of  competition 
in,  183 ;  number  of  copies  of  in- 
voices required,  211;  payment  of 
bills  by,  220. 

Navy  department,  price  records 
kept  by,  106;  bulletin  board  pub- 
licity of  purchases,  177-178;  in- 
spection of  purchases  in,  201. 

New  York  Central  Lines,  central- 
ization of  purchasing  in,  17. 

New  York  Central  Railroad,  num- 
ber of  copies  of  invoices  required 
by,  212;  checking  invoices,  215; 
payment  of  bills  by,  220;  purchas- 
ing system  of,  241-254. 

New  York  City,  centralization  of 
purchasing  in,  23-27;  board  of 
aldermen  empowered  to  waive 
requirement  of  competition,  46; 
board  of  estimate  and  apportion- 
ment empowered  to  waive  re- 
quirement of  award  to  lowest 
bidder,  46 ;  competition  and 
award  to  lowest  bidder  not  re- 
quired below  certain  amount,  47; 
board  of  estimate  and  apportion- 
ment, power  to  prescribe  compet- 
itive conditions  in  purchase  of 
patented  articles,  47  note  i ; 
length  of  time  required  for  ad- 
vertisement of  proposals  in,  49; 
award  to  lowest  bidder  when  in 
default  not  required,  51 ;  deter- 
mining requirements  in  public  in- 
stitutions in,  81 ;  health  depart- 
ment, coordination  of  deliveries 
with  requirements  in,  96-98;  rec- 
ord of  prices  current  compiled  by, 
108;  arrangement  of  specifica- 
tions used  by,  133 ;  board  of  esti- 
mate and  apportionment,  pur- 
chases standardized  by,  135 ;  cen- 
tral purchase  committee,  method 
of  class  bidding  adopted  by,  146; 
fire  department,  miscellaneous  in- 
vitation for  bids  used  by,  151 ;  de- 
lay in  making  up  consolidated 
contracts  in,  155;  inflexibility  in 
purchase  contracts  in,  163 ;  de- 
partment of  public  charities,  in- 
formal requests  for  quotations 
used  in,  164;  formal  advertise- 
ment of  purchases  in,  174-177; 
central  purchasing  committee, 
plan  adopted  for  notifying  deal- 
ers of  purchase  requirements, 
182 ;  geographical  extent  of  com- 
petition in,  183;  publicity  in  pur- 


273 


INDEX 


chasing  in,  i86;  formalities  in 
making  awards  and  executing 
contracts  in,  189-191 ;  inspection 
of  coal  in,  200;  inspection  of  pur- 
chases in,  201-202;  centralization 
of  deliveries  in,  202;  organization 
of  inspection  service  in,  204-205 ; 
delivery  of  invoices  with  goods, 
208;  number  of  copies  of  invoices 
required  by,  211;  checking  in- 
voices by,  215 ;  system  of  avoid- 
ing duplicate  payment  of  invoices, 
217;  payment  of  bills  by.  219,  221. 

New  York  State,  formalities  in  pur- 
chase contracts  in,  120. 

Notification  to  dealers  of  purchase 
requirements,   180-182. 

Operating  department,  function  in 
determining  requirements  in  pub- 
lic utility,  79. 

Packard  Motor  Company,  competi- 
tion between  shops  and  outside 
producers  in  procurement  of 
parts,  79;  coordination  of  deliv- 
eries with  requirements  in,  90; 
invoice  stationery  supplied  to 
vendors  by,  212. 

Philadelphia,  centralization  of  pur- 
chasing in,  32 ;  fluctuation  in  price 
in  purchase  agreements  permitted 
in,  165. 

Price,  definiteness  of,  in  purchase 
agreements,  157;  indefiniteness  as 
to,  in  purchase  agreements,  161. 

Price  records,  kept  by  purchasing 
agent,  105-107;  by  U.  S.  Navy, 
106;  by  General  Electric  Com- 
pany, 107. 

Processes  of  manufacture,  informa- 
tion necessary  for  purchasing 
agent,  109. 

Providence,  R.  I.,  board  of  contract 
and  supply  empowered  to  waive 
requirement  of  competition  and 
award  to  lowest  bidder,  46. 

Public  institutions,  determining  re- 
quirements of,  81 ;  determining 
total  quantities  required  for,  85 ; 
coordination  of  deliveries  with 
requirements  in,  95-98. 

Public  officers,  excluded  from  par- 
ticipation in  contracts,  53. 

Public  utilities,  determination  of  ar- 
ticles needed  for,  79;  determin- 
ing total  quantities  required  for, 
85 ;  coordination  of  deliveries 
with  requirements,  93-94. 

274 


Pullman  Company,  board  of  stand- 
ardization, 78;  follow-up  divi- 
sion in,  194;  payment  of  bills  by, 
219. 

Purchase  agreements,  advantages 
over  formal  contracts,  56;  form 
of.  73-74;  definiteness  in,  153-158; 
forms  of  indefiniteness  in,  159- 
163. 

Purchase  negotiations,  publicity  of, 
in  commercial  and  governmental 
practice,  186-188;  objection  tC" 
publicity  of,  in  government  pur- 
chasing, 187. 

Purchase  negotiations  and  awards, 
185-191- 

Purchase  requirements,  determina- 
tion of,  69,  76-98;  publicity  of,. 
172-184;  formal  advertisement  of, 
in  cities,  174-177;  bulletin  board 
publicity  of,  177-180;  notification 
to  dealers  of,  180-182. 

Purchasers,  precise  specifications 
in  invitations  for  bids  an  aid  to, 
123-125 ;  advantages  and  disad- 
vantages of  class  and  item  bids 
to,  142;  invitations  for  bids  in  al- 
ternate desirable,  148-149;  advan- 
tages and  disadvantages  of  defi- 
niteness in  purchase  agreements 
to,  153 ;  indefiniteness  of  agree- 
ment often  favored  by,  159-163; 
publicity  of  purchase  require- 
ments not  always  desired  by,  172. 

Purchasing  agent,  authority  proper- 
ly vested  in,  59-66 ;  consulted  in 
selection  of  articles  for  construc- 
tion jobs,  Tj;  consulted  in  selec- 
tion of  articles  on  manufacturing 
jobs,  78;  advisory  capacity  in 
Packard  Motor  Co.,  79 ;  consulted 
in  selection  of  articles  for  pub- 
lic utility,  80;  consulted  in  selec- 
tion of  articles  for  public  insti- 
tutions, 82 ;  duties  in  coordinating 
deliveries  with  requirements  on 
manufacturing  jobs,  92;  knowl- 
edge needed  in  determining  mar- 
ket conditions  and  tendencies,  99- 
102 ;  knowledge  needed  in  obtain- 
ing articles  to  meet  each  need, 
103-105  ;  knowledge  needed  ^  re- 
garding current  market  prices, 
105-106;  knowledge  needed  re- 
garding processes  of  manufac- 
ture, 109;  duty  of,  in  standardiza- 
tion of  specifications,  138;  use  of 
definite  and  indefinite  contracts 
by,  165. 


INDEX 


Purchasing  process,  outlined,  69- 
75. 

Quantity,  indefiniteness  as  to,  not 
infrequent  in  contracts,  159. 

Reclamation  work,  on  Santa  Fe 
Railroad,  under  direction  of  pur- 
chasing agent,  80. 

Red  tape  in  bidding,  elimination  of, 
119. 

Requirements,  determination  of,  on 
construction  jobs,  ^7;  on  manu- 
facturing jobs,  78;  for  public  util- 
ities, 79;  in  public  institutions, 
81 ;  determining  quantities,  83-86. 

Rock  Island  Railroad,  coordination 
of  deliveries  with  requirements 
on,  93. 

Sample  specifications,  advantages 
of,  126. 

Santa  Fe  Railroad,  reclamation 
work  under  direction  of  purchas- 
ing agent,  80. 

Schenectady,  certification  required 
with  invoice  in,  210. 

Security  deposit,  bidders  required 
to  furnish,  55. 

Sources  of  supply,  information  as 
to,  102. 

Specifications,  development  of,  72, 
123-140;  should  be  broad  to  ad- 
mit of  competition,  114;  verbal 
versus  sample,  126-132;  precise, 
impracticable  in  certain  cases, 
129;  tmdesirable  in  certain  cases, 
129;  practicable  only  in  conjunc- 
tion with  testing  facilities,  129; 
proper  contents  of,  133;  stand- 
ardization of,  133-138. 

Standardization  board,  work  of  in 
determining  requirements  on 
manufacturing  jobs,  78;  in  Pull- 
man Co.,  78;  in  Westinghouse 
Electric  &  Mfg.  Co.,  79. 

Standardization  committee,  estab- 
lished in  Washington,  New  York, 
Baltimore,  St.  Louis,  134-135. 

Standardization  of  specifications, 
steps  in  program,  135-138. 

St.  Louis,  centralization  of  purchas- 
ing in,  38 ;  competition  and  award 
to  lowest  bidder  not  required  be- 
low certain  amount,  47;  provision 
governing  advertisement  of  pro- 
posals in,  50;  standardization 
committee  established  in,  135 ; 
formal    advertisement    of     pur- 


chases in,  174;  organization  of  in- 
spection service  in,  204. 

St.  Paul,  provisions  governing 
emergency  purchases  in,  48; 
award  of  contract  to  lowest  bid- 
der when  in  default  not  required, 
51  note  I ;  formal  advertisement 
of  purchases  in,  176;  geographi- 
cal extent  of  competition  in,  183 ; 
publicity  in  purchasing  in,  187; 
certification  required  with  in- 
voice in,  209. 

Stratton,  Dr.  Samuel  W.,  director. 
National  Bureau  of  Standards, 
comment  on  verbal  and  sample 
specifications,  126. 

Syracuse,  certification  required  with 
invoice  in,  210. 

Thorne,  W.  V.  S.,  paper  on  contin- 
uing agreements  in  city  purchas- 
ing, 255-270. 

U.  S.  Government,  general  supply 
committee,  purchases  of  depart- 
ments standardized  through,  134- 
135 ;  homogeneous  invitation  for 
bids  used  by,  151 ;  work  of,  167- 
171. 

Vendors,  legal  formalities  necessary 
to  insure  good  faith  of,  55 ;  ad- 
vantages and  disadvantages  of 
definiteness  in  purchase  agree- 
ments to,  156. 

Verbal  specifications,  advantages 
of.  126. 


War  Department,  alternative  bid- 
ding in,  148;  inspection  of  pur- 
chases in,  201. 

Western  Electric  Company,  central- 
ization of  purchasing  in,  12-13. 

Westinghouse,  Church,  Kerr  Com- 
pany, centralization  of  purchasing 
in,  16. 

Westinghouse  Electric  &  Mfg. 
Company,  centralization  of  pur- 
chasing in,  11;  specification  com- 
mittee, 79;  coordination  of  deliv- 
eries with  requirements  in,  89; 
follow-up  division  in,  193;  meth- 
od of  follow-up  of  deliveries  in, 
196-197;  number  of  copies  of  in- 
voices required,  211. 

Willys-Overland  Company,  follow- 
up  division  in,  193 ;  method  of 
follow-up  of  deliveries  in,  197; 
number  of  copies  of  invoices  re- 
quired by,  211. 

27s  [2] 


This  book  is  DUE  on  the  last  date  stamped  below 


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